Safe Travel produces car seats for children from newborn to 2 years old. Safe Travel's only problem with its car seats was stitching in the straps. The problem can usually be detected and repaired during an internal inspection. Inspection costs $5.00 per car seat, and repairs cost $1.00 per car seat. All 200,000 car seats were inspected last year, and 5% were found to have problems with the stitching. Another 1% of the 200,000 car seats had problems with the stitching, but the internal inspection did not discover them. Defective units that were sold and shipped to customers are shipped back to Safe Travel and repaired. Shipping costs are $8.00 per car seat, and repair costs are $1.00 per car seat.
Negative publicity will result in a loss of future contribution margin of $100 for each external failure.
Required:
1. Identify total costs of quality by category (appraisal, internal failure, and external failure).
2. Safe Travel is concerned with the high up-front cost of inspecting all 200,000 units. It is considering an alternative internal inspection plan that will cost only $3.00 per car seat inspected. During the internal inspection, the alternative technique will detect only 3.5% of the 200,000 car seats that have stitching problems. The other 2.5% will be detected after the car seats are sold and shipped. What are the total costs of quality for the alternative technique?
3. What factors other than cost should Safe Travel consider before changing inspection techniques?