Case Design produces cell-phone covers for all makes and models of cell phones. Case Design sells...

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Case Design produces cell-phone covers for all makes and models of cell phones. Case Design sells 1,025,000 units each year at a price of $16 per unit and a contribution margin of 44%. A survey of Case 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. Case Design's managers want to modify their production processes to develop products that more closely match Case Design's specifications because the quality control in place to prevent ill-fitting products from reaching customers is not working very well. Current costs of quality i (Click on the icon to view the current costs of quality.) Required Required 1. Which cost of quality category are managers focusing on? Why? 2. If the improvements result in a 58% decrease in customer replacement cost and a 74% decrease in customer returns, what is the impact on the overall COQ (cost of quality) and the company's operating income? What should Case Design do? Explain. 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. 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 $ $ $ $ $ $ $ 205,000 108,000 422,000 23,000 325,000 786,500 149,500 139,000 Case Design produces cell-phone covers for all makes and models of cell phones. Case Design sells 1,025,000 units each year at a price of $16 per unit and a contribution margin of 44%. A survey of Case 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. Case Design's managers want to modify their production processes to develop products that more closely match Case Design's specifications because the quality control in place to prevent ill-fitting products from reaching customers is not working very well. Current costs of quality i (Click on the icon to view the current costs of quality.) Required Required 1. Which cost of quality category are managers focusing on? Why? 2. If the improvements result in a 58% decrease in customer replacement cost and a 74% decrease in customer returns, what is the impact on the overall COQ (cost of quality) and the company's operating income? What should Case Design do? Explain. 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. 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 $ $ $ $ $ $ $ 205,000 108,000 422,000 23,000 325,000 786,500 149,500 139,000

Answer rating: 100% (QA)

1 The managers are focusing on external failure costs product replacements and lost sales from custo... View the full answer