Steven Brylle N.

Belen
BSA 2B

Exercise 6

1. What are the additional cost of choosing the new process?

Cost of new equipment 12 000 000

add: training 3 000 000
total additional cost of the new process 15 000 000

2. What are the benefits of choosing the new process?

Quality cost if no change is made

Rework 3,000 x .4 x 2,000 = 2,400,000

Repair 3,000 x .15 x 2,500 = 1,125,000
appraisal 600,000
Inspection 3,000 x 50 = 150,000
lost on contribution;
sales 12,000 x .85 = 10,200
less: variable cost = ( 2,500)
7,700
3,750 (3,000/.8)
(3,000) = x 750 = 5,775,000 Total current cost of quality
10,500,000
less: repair cost under warranty 3,000/.8 x .5 x 1 000 (187,500)
9,862,500 Only effective in 3 years
x 3yrs
29,587,500

Less: appraisal and inspection cost in year 1 (750, 000)

total benefits 28,837,500

3. Should jimmy use the new process?

Yes, the benefit is much higher than the cost

4. What factor should be considered before making the final decision?

Cost of repair and rework, cost of new process, loss of sales for reliable estimation and accuracy

5. Do you agree

No. the members of the board must not ignore the new process. Because it receives more benefit than
the current process. It is crucial to the firm to provide high quality products while saving. The firm must
continue the new process more than 3 years for long term pay off.