Ziaomi manufactures and sells robotic vacuum. Components are bought in and assembled by Ziaomi. There are a number of alternative suppliers of these robotic vacuum. Some of Ziaomis competitors charge a lower price, but supply lower quality product; whereas others supply higher quality robotic vacuum than Ziaomi but for a much higher price. Ziaomi is preparing its budgets for the coming year and has estimated that the market demand for its type of robotic vacuum will be 18,000 units.

The variable and fixed costs of rework and repair are as follows:

	Variable Cost	Fixed Cost
	$	$
Rework cost per hour	82	115
Repair costs:-
Customer support cost per hour	30	55
Transportation cost per load	350	115
Warranty repair cost per hour	83	150

Ziaomis current process have a quality problem that causes variations in the operation time. Its engineers suggest changing a key component in each vacuum. The new component will cost $70 more than the old one. In the next year, however, Ziaomi expects that with the new component it will (1) save 13,000 hours of rework, (2) save 900 hours of customer support, (3) move 215 fewer loads, (4) save 7,500 hours of warranty repairs, and (5) sell an additional 1,600 robotic vacuums and contribution margin per unit is $1,075. Ziaomi believes that even as it improves quality, it will not be able to save any of the fixed costs of rework or repair. Ziaomi uses a 1-year time horizon for this decision because it plans to introduce a new model at the end of the year.

Besides, you have recently been appointed as the management accountant of Ziaomi. When you meet the Managing Director, you overhear him speaking to one of his staff, saying: financial measurement of quality is a nonproductive system. I dont see the point of it. It tells us what we cant achieve in the short run. It can be confusing and difficult to measure.

Required:

(a) Explain whether Ziaomi should focus on financial measures of quality because these are the measures of quality that can be linked long term performance. (6 Marks)

(b) Evaluate and recommend whether Ziaomi should change to the new component. Show all relevant workings. (7 Marks)

(c) Discuss factors other than cost that Ziaomi should consider before changing the inspection techniques. (6 Marks)