Solid Travel 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, Solid Travel's only problem with its car seats was stitching in the straps. The problem can usually be detected and repaired during an internal inspection.

The cost of the inspection is $4.00 per car seat, and the repair cost is $2.00 per car seat. All 205,000 car seats were inspected last year, and 6% were found to have problems with the stitching in the straps during the internal inspection. Another 1% of the 205,000 car seats had problems with the stitching, but the internal inspection did not discover them. Defective units that were sold and shipped to customers needed to be shipped back to Solid Travel and repaired. Shipping costs are $9.00 per car seat, and repair costs are $2.00 per car seat. However, the out-of-pocket costs (shipping and repair) are not the only costs of defects not discovered in the internal inspection. Negative publicity will result in a loss of future contribution margin of $110 for each external failure.

Required:

1. Calculate appraisal cost.

2. Calculate internal failure cost.

3. Calculate out-of-pocket external failure cost.

4. Determine the opportunity cost associated with the external failures.

5. What are the total costs of quality?

6. Travel is concerned with the high up-front cost of inspecting all 205,000 units. It is considering an alternative internal inspection plan that will cost only $ 3.50 per car seat inspected. During the internal inspection, the alternative technique will detect only 2.5 % of the 205,000 car seats that have stitching problems. The other 1.5 % will be detected after the car seats are sold and shipped. What are the total costs of quality for the alternative technique?

7. What factors other than cost should Solid Travel consider before changing inspection techniques?

Requirement 1. Calculate appraisal cost.

The appraisal cost is ____

Requirement 2. Calculate internal failure cost.

The internal failure cost is ____

Requirement 3. Calculate out-of-pocket external failure cost.

The out-of-pocket external failure cost is ___

Requirement 4. Determine the opportunity cost associated with the external failures.

The opportunity cost associated with the external failures is ____

Requirement 5. What are the total costs of quality?

The total cost of quality is ____

Requirement 6. What are the total costs of quality for the alternative technique? (Round your answer to the nearest whole dollar)

The total costs of quality for the alternative technique is ____

Requirement 7. What factors other than cost should Solid Travel consider before changing inspection techniques?

Select all that apply.

A.

Higher external failure rates may increase the probability of lawsuits.

B.

Lower internal failure rates may increase product recalls.

C.

Government intervention is a concern with the chances of government regulation increasing with the number of external failures.

D.

There could easily be serious reputation effects if the percentage of external failures increases from 1% to 1.5 %. This rise in external failures may lead to costs greater than $ 110 per failure due to lost profits.