Problem 3 [20%]
KateSteel Corporation manufactures computer components. Lisa, the general manager of KateSteel's largest manufacturing plant, has just returned from a meeting at corporate headquarters where quality expectations were outlined for 2021. Lisa meets with Jack, the management accountant, to relay the corporate quality objective that total quality costs will not exceed 9% of total revenues by plant under any circumstances. Lisa asks Jack to provide a list of options for meeting corporate headquarters' quality objcctive. The plant's initial budgeted revenues and quality costs for 2021 are as follows:
Prior to receiving the new corporate quality objective, Jack had collected information for all of the plant's possible options for himproving both product quality and costs of quality. Jack' was planning to introduce the idea of reengineering the manufacturing brocess at a one-time cost of $121,420, which would decrease product inspection costs by approximately 24% per year and was expccted to reduce warranty repairs and customer support by an estimated 42% per year. After seeing the new corporate objective, Jack is reconsidering the reengineering idea. 71,450 Jack crunches the numbers again to look for other alternatives.
Jack concludes that by increasing the cost of quality control training for production staff by$23,420 per year, the company would reduce inspection costs by 11% annually and reduce warranty repairs and customer support costs by 22% per ycar as well.
Required:
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