MNO is a manufacturing company that produces luggage. At the end of the year, its annual costs relating to quality are as follows:
Inspection at the end of the production process: $20,000
Scrap from the production process: $18,000
Design work for product improvement: $24,000
Total costs related to customer complaints: $40,000
Employee training: $12,000
Incoming raw material inspection: $10,000
First, classify each of the above as prevention costs, appraisal costs, internal failure costs, or external failure costs.
Next, suppose that the company has determined that if they increase employee training costs by $15,000, they expect to reduce all failure costs by 20%. Should MNO Company increase their training costs? Show your calculations and explain.