Custom Productions produces car seats for children from newborn to 2 years old. The company is worried because one of its competitors has recently come under public scrutiny because of product failure. Historically, Safe Custom Productions's only problem with its car seats was stitching in the straps. Custom Production has discovered a more serious problem with the plastic core of its car seats. An accident can cause the plastic in some of the seats to crack and break, resulting in serious injuries to the occupant. It is estimated that this problem will affect about 300 car seats in the next year. This problem could be corrected by using a higher quality of plastic that would increase the cost of every car seat produced by $30. If this problem is not corrected, Custom Production estimates that out of the 300 car seats affected, customers will realize that the problem is due to a defect in the seats in only five cases. Custom Production's legal team has estimated that each of these five accidents would result in a lawsuit that could be settled for about $1,000,000. All lawsuits settled would include a confidentiality clause, so Custom Productions's reputation would not be affected.

Requirements:

1. Assuming that Custom Productions expects to sell 225,000 car seats next year, what would be the cost of increasing the quality of all 225,000 car seats?

2. What will be the total cost of the lawsuits next year if the problem is not corrected?

3. Suppose Custom Productions has decided not to increase the quality of the plastic because the cost of increasing the quality exceeds the benefits (saving the cost of lawsuits). What do you think of this decision? (Note: Because of the confidentiality clause, the decision will have no effect on Custom Productions reputation.)

4. Are there any other costs or benefits that Custom Productions should consider?