Question
Photon makes photocopying machines which earned an operating income of $24 Million on revenues of $ 300 million last year. Photon determines the cost of
Photon makes photocopying machines which earned an operating income of $24 Million on revenues of $ 300 million last year. Photon determines the cost of quality by adapting the activity-based costing approach.
Photon's Market Research Department has estimated lost sales of 2,000 photocopying machines during the year because of external failures. The total estimated contribution margin lost on those machines is $12 Million.
Compute the Percentage of Cost of Capital on Total Revenue after including the opportunity costs.
What are your recommendations for drastic reduction in the Cost of Quality from next year.
| Description | Rate | Quantity | Total Cost in USD |
| Prevention Costs |
|
|
|
| - Design Engineering | $80/hr | 40,000 hrs | 32,00,000 |
| - Process Engineering | $60/hr | 45,000 hrs | 2700000 |
| Total Preventive Costs |
|
| 59,00,000 |
|
|
|
|
|
| Appraisal Costs |
|
|
|
| - Inspection | $40/hr | 240,000 hrs | 96,00,000 |
| Total Appraisal Costs |
|
| 96,00,000 |
|
|
|
|
|
| Internal Failure Costs |
|
|
|
| - Rework | $100/hr | 100,000 hrs | 1,00,00,000 |
| Total Internal Failure Costs |
|
| 1,00,00,000 |
|
|
|
|
|
| External Failure Costs |
|
|
|
| - Customer Support | $50/hr | 12,000 hrs | 6,00,000 |
| - Transportatation | $240/load | 3,000 loads | 7,20,000 |
| - Warranty Repairs | $110/hr | 120,000 hrs | 1,32,00,000 |
| Total External Failures |
|
| 1,45,20,000 |
|
|
|
|
|
| Total Cost of Quality |
|
| 4,00,20,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started