P 14-10- Six Sigma at the Stowbridge Division The Stowbridge Division is analyzing expanding its total quality management program. It already has a six sigma program in place. However, one of its customers, Amlan Equipment, is asking all Page 633 suppliers to become ISO 9000 qualified, a process that certifies that the firm meets various standards. Once suppliers are ISO 9000 qualified, Amlan can reduce its inspection costs. Not all of the suppliers will be certified, and those that are will receive more business from Amlan. Amlan purchases a stainless steel rotor from Stowbridge. After earning ISO 9000 certification, Stowbridge estimates that it will have to incur the following annual incremental costs as long as it wants to maintain its certification. Annual Incremental Costs to Be ISO 9000 Certified $74,000 $96.000 Training Inspection Prevention Direct materials Direct labor $62,000 +10% -15% To manufacture the current quality of the rotors (before ISO 9000 certification), the budgeted selling price and standard cost data per rotor follow. $ 14.00 Selling price Less standard costs: Direct materials $ 4.30 Direct labor 2.40 Manufacturing overhead (all fixed) 2.05 P 14-10- Six Sigma at the Stowbridge Division The Stowbridge Division is analyzing expanding its total quality management program. It already has a six sigma program in place. However, one of its customers, Amlan Equipment, is asking all Page 633 suppliers to become ISO 9000 qualified, a process that certifies that the firm meets various standards. Once suppliers are ISO 9000 qualified, Amlan can reduce its inspection costs. Not all of the suppliers will be certified, and those that are will receive more business from Amlan. Amlan purchases a stainless steel rotor from Stowbridge. After earning ISO 9000 certification, Stowbridge estimates that it will have to incur the following annual incremental costs as long as it wants to maintain its certification. Annual Incremental Costs to Be ISO 9000 Certified $74,000 $96.000 Training Inspection Prevention Direct materials Direct labor $62,000 +10% -15% To manufacture the current quality of the rotors (before ISO 9000 certification), the budgeted selling price and standard cost data per rotor follow. $ 14.00 Selling price Less standard costs: Direct materials $ 4.30 Direct labor 2.40 Manufacturing overhead (all fixed) 2.05