Stuck on doing requirement 3 of this question - requirement 1 and requirement 2 are done - I just need help doing requirement 3
ABC Design produces cell phone covers for all makes and models of cell phones. ABC Design sels 1,017,500 units each year at a price of 514 per unit and a contribution margin of 42% A survey of ABC Design customers over the past 12 months indicates that customers were very satisfied with the products, but a disturbing number of customers were disappointed because the products they purchased did not fit their phones. They then had to hassle with returns and replacements. ABC Design's managers want to modify their production processes to develop products that more closely match ABC Design's specifications because the quality control in place to prevent il-fitting products from reaching customers is not working very we (Click on the icon to view the current costs of quality.) Required $ 202,000 $ 105,000 $ 428,000 $ 24.000 Prevention costs Appraisal costs Internal failure costs Rework Scrap External failure costs Product replacements Lost sales from customer returns The QC manager and controller have forecast the following additional costs to modify the production process. CAD design improvement Improve machine calibration to specifications $ 327,500 $ 786,500 148,500 $ $ $ 136.000 Requirement 1. Which cost of quality category are managers focusing on? Why? ABC Design's managers' plan to increase prevention costs to ABC Design's managers plan to increase spending on CAD design improvement and improving machine calibrations to achieve product specifications is a prevention cost. improve quality Requirement 2. If the improvements result in a 58% decrease in product replacement cost and a 66% decrease in customer returns, what is the total benefit amount for the changes to the COQ (cost of quality) and the company's operating income? What should ABC Design do? (Round your answer to the nearest whole dollar.) If ABC Design makes the improvements, the total benefit is 407,968 If ABC Design makes the improvements, the impact to the company's operating income is 123,468. (Round your answer to the nearest whole dollar.) The total benefits of making the quality improvements exceeds the costs, so ABC Design should implement the changes to improve quality. Requirement 3. Calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs and as a percentage of sales before and after the change in the production process. Comment briefly on your results. Calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs and as a percentage of revenue before the change. Fill in the table below. (Round the percentage amounts to one decimal place. X.X%.) Percentage of Total Costs of Quality Percentage of Revenues Description Amount Prevention costs $ 202,000 14.3 % 1.4 % 105,000 Appraisal costs 7.4 % 0.7 % Internal failure costs Rework 428,000 24.000 Scrap Total internal failure costs 452,000 31.9 % 3.2 % External failure costs Product replacements costs Lost contribution margin from customer returns 327,500 330,330 Total external failure costs 657,830 46.4 % 4.6 % $ 1.416,830 Total costs of quality Calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs and as a percentage of revenue after the change. Fill in the table below. (Round the percentage amounts to one decimal place, X.X%) Calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs and as a percentage of revenue after the change. Fill in the table below. (Round the percentage amounts to one decimal place, X.X%.) Percentage of Total Costs of Quality Percentage of Revenues Description Amount Prevention costs % % Appraisal costs % Internal failure costs Rework Scrap Total internal failure costs % % External failure costs Product replacement costs Lost contribution margin from customer returns Total external failure costs % Total costs of quality
