All Seasons Comfort Inc. (ASC) manufactures products for the HVAC (Heating, Ventilation, Air Conditioning) industry. Two of their air conditioning products are the Fredda and the Arctica. The industrial engineer that has overseen the design and implementation of the manufacturing of these two products would like a quality report.

You have gathered the following information:

Fredda Arctica

Units manufactured and sold 5,000 2500

Selling price per unit $1,920 $1,440

Variable costs per unit $1,152 $768

Hours spent on quality design 2,800 500

Testing and inspection hours per unit 1 0.5

Percentage of units reworked in the plant 4% 10%

Rework costs per air conditioner $410 $385

Percentage of units under warranty repaired at customer site 3% 8%

Warranty repair costs per air conditioner $480 $430

Estimated lost sales (in units) from poor quality 0 160

Labour rates:

Design - $90 per hour

Testing - $48 per hour

1. Prepare a cost of quality report for ASC. The report should list all cost items categorized by type of quality cost, including percentages in relation to revenues for each product and category.

Fredda Arctic

Quality item Quality cost % Quality cost %

Prevention

Appraisal

Internal failure

External failure

Total

2.Explain to results to the Industrial Engineer of ASC. Provide a recommendation for quality cost improvement at ASC.