Industrial Technologies, Inc. (ITI), produces two compression machines that are popular with manufacturers of plastics: no. 165 and no. 172. Machine no. 165 has an average selling price of $30,000, whereas no. 172 typically sells for approximately $27,500. The company is very concerned about quality and has provided the following information:

Required:
1. Classify the preceding costs as prevention, appraisal, internal failure, or external failure.
2. Using the classifications in requirement (1), compute ITI€™s quality costs for machine no. 165 in dollars and as a percentage of sales revenues. Also calculate prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs.
3. Repeat requirement (2) for machine no. 172.
4. Comment on your findings, noting whether the company is €œinvesting€ its quality expenditures differently for the two machines.
5. Quality costs can be classified as observable or hidden. What are hidden quality costs, and how do these costs differ from observablecosts?

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No. 165 No. 172 160 Number of machines produced and sold Warranty costs: 200 $900 70% 1,600 hours $350 10% 2,000 hours Average repair cost per unit Percentage of units needing repair Rellability engineering at $150 per hour Rework at ITI's manufacturing plant $1,900 35% 300 hours $29,500 $35,000 $1,600 25% 500 hours $15,000 $50,000 Average rework cost per unit Percentage of units needing rework Manufacturing inspection at $50 per hour Transportation costs to customer sites to fix problems Quality training for employees