Al Khoud Corporation produces custom made dashboards for international car manufacturers in the GCC States. It

provides the following costing data:

Quantity Sold 590,000 Rework OMR24,000

Selling Price per unit OMR8 Scrap OMR1,200

Prevention Costs OMR121,000 Product Replacements Costs OMR35,100

Appraisal Costs OMR19,000 Lost of sales from Repeating Customers OMR87,750

Improvement Costs OMR52,500 Contribution Margin 45%

A customer satisfaction survey suggests that an alarming number of car manufacturers were upset because the

products did not meet their specifications, causing them to return and seek replacements. Al Khoud Corporation decided

to embark on production improvement process which costs are provided in the table above. Following the production

improvement process, the following impacts are forecasted:

Percentage decrease in Product Replacement Costs 70%

Percentage decrease in Lost of sales from Repeating Customers 60%

(a) Explain with proper numerical justifications whether Al Khoud Corporation should continue with the production improvement process.

(b) Calculate the prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs (CoQ) and as a percentage of sales before and after the change in the production process.

(c) Provide your comments on your results in (b) above.