Problem 8-39 Quality Costs: Identification and Analysis (LO 8-7)

Advanced Technologies (AT) 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 $30,800, whereas no. 172 typically sells for approximately $28,300. The company is very concerned about quality and has provided the following information:

	No. 165			No. 172
Number of machines produced and sold		200			220
Warranty costs:
Average repair cost per unit	$	940		$	390
Percentage of units needing repair		75	%		10	%
Reliability engineering at $190 per hour		1,640	hours		2,020	hours
Rework at AT's manufacturing plant:
Average rework cost per unit	$	1,920		$	1,620
Percentage of units needing rework		20	%		25	%
Manufacturing inspection at $40 per hour		320	hours		540	hours
Transportation costs to customer sites to fix problems	$	30,300		$	15,800
Quality training for employees	$	35,800		$	50,400

Required: 1. Classify the preceding costs as prevention, appraisal, internal failure, or external failure. 2-a. Using the classifications in requirement 1, compute AT's quality costs for machine no. 165 in dollars and as a percentage of sales revenues. 2-b. Using the classifications in requirement 1, compute AT's prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. 3-a. Using the classifications in requirement 1, compute AT's quality costs for machine no. 172 in dollars and as a percentage of sales revenues. 3-b. Using the classifications in requirement 1, compute AT's prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs. 4. Is the company "investing its quality expenditures differently for the two machines?