Genelec manufactures high-quality speakers. Suppose Genelec is considering spend
ID: 2598450 • Letter: G
Question
Genelec manufactures high-quality speakers. Suppose Genelec is considering spending the following amounts on a new quality program
7. Lost sales due to disappointed customers
Should Genelec adopt or refuse this quality program? Give your reason/calculations.
€ 858,000
Prevention costs 2. Negotiating & training suppliers to obtain higher quality material & on time delivery € 550,000 3. Redesigning the speakers to make them easier to manufacture € 1,405,000 Appraisal costs 1. Additional 20 minutes of testing for each speaker € 604,000 5. Avoid inspection of raw materials € 404,000 Internal failure costs 6. Rework avoided because of fewer defective units € 656,000 8. Lost production time due to rework € 309,000 External failruse costs 4. Reduced warranty repair costs € 208,0007. Lost sales due to disappointed customers
Should Genelec adopt or refuse this quality program? Give your reason/calculations.
€ 858,000
Explanation / Answer
Costs under this program Prevention costs 2. Negotiating & training suppliers to obtain higher quality material & on time delivery € 550,000 3. Redesigning the speakers to make them easier to manufacture € 1,405,000 Total costs € 1,955,000 Benefits of this program Saving of Appraisal costs 1. Additional 20 minutes of testing for each speaker € 604,000 5. Avoid inspection of raw materials € 404,000 Saving of Internal failure costs 6. Rework avoided because of fewer defective units € 656,000 8. Lost production time due to rework € 309,000 Saving of External failures costs 4. Reduced warranty repair costs € 208,000 7. Lost sales due to disappointed customers € 858,000 Total benefits € 3,039,000 Net benefits € 1,084,000 Genelec should adopt quality program as benefits of costs savings outweigh the costs ivolved.
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