Speed Connect (SC) produces internet modems. The company is worried because one of its competitors has recently come under public scrutiny owing to product failure. SC’s only problem with its modem is the electronic switch between 4G and Wi-Fi which can overheat, and in very isolated instances, catch fire. The problem can usually be detected and repaired during an internal inspection. The cost of the inspection is $5.50 per modem and the repair cost is $1.50. All 300 000 modems produced during the previous year were inspected of which 8% were found to have problems with the electronic switch. Another 1.5% of the 300 000 modems had problems with the electronic switch but were not detected during internal inspection. When SC has sold and shipped defective modems to customers, customers return them, and SC pays $7.50 for shipping costs and repairs the units at a cost of $1.50 per modem. However, the shipping and repair costs are not the only costs resulting from the defects that remained undetected by the internal inspection. Management estimates that negative publicity and social media commentary will result in a loss of $150 for each defect discovered by customers.

Required

1. Identify and calculate each cost-of-quality category, and the total costs of quality for SC.

 

2. SC is concerned about the high up-front cost of inspecting all 300 000 units. It is considering an alternative internal inspection plan that will cost only $2.50 per modem inspected. During the internal inspection, this alternative technique will detect only 5.5% of the 300 000 modems that have electronic switch problems. The other 2.5% will be detected after the modems are sold and shipped. What are the total costs of quality for the alternative technique?

 

3. Which inspection techniques should SC adopt?  Also consider social responsibility and sustainability factors.