Crimson Ltd (CL) is a manufacturer who is famous for making  Sierra, a voice-controlled AI-enabled virtual assistant. On  average, the company makes and sells 6,000 Sierra each year.  In 2021, CL decided to invest in a quality management  programme to further improve the quality of Sierra.
As part of the above programme, CL is considering replacing  the microchip in Sierra. The improved model will incur an  additional cost of $130 per unit. It is believed that the  improved product will lead to the following savings:
• reduction of 6,000 rework hours;
• saving of 1,200 hours of customer support; and
• reduction of 1,250 hours of warranty repairs.
CL anticipates that with the improved product quality, an  additional 3,000 Sierras can be sold in the year, leading to  an increased contribution margin of 300,000.
The following data is related to the costs of rework and repair  for CL’s products:
The proposed change only leads to improved product quality and  will  not affect any of the fixed rework or repair costs.

Required:
a) Determine if CL should replace the microchip in Sierra. Show  all your calculations clearly.
b) For some reason, CL seems apprehensive regarding the increased sales if a new microchip is to be fitted in a  Sierra. Comment on whether it is necessary for CL to achieve  additional sales to justify replacing the microchip in  Sierra.
c) Discuss the non-financial factors that CL should consider  when deciding whether to replace the microchip or not.
d) Identify the four categories of the cost of quality that are  relevant to the operation of CL.
e) Discuss the specific areas that CL should focus on in  connection with its quality management programme.

Answer rating: 100% (QA)

A Yes CL should replace the microchip in Sierra The total savings from the improved product quality are reduction of 6000 rework hours saving of 1200 hours of customer support and reduction of 1250 ho... View the full answer