Problem 1:
Here are some of MNO Company's annual costs relating to quality:
* 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 either 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 do this? Show your calculations.
Problem 2:
Let's see how good you are at budgeting. Determine the total cost of purchasing and owning a car over the next 5 years given the following information and assuming that you will drive it 15,000 miles per year:
1. Purchase price of your new Kia (you are frugal!) is $20,000. You put 20% cash down and finance the rest over five years with total financing costs equaling $2,400. At the end of year 5 you can sell it for $3,500.
2. You live in Massachusetts so your sales tax rate is 5% on the new vehicle (sales taxes are already factored into all of your other costs), your annual registration fees are $100, your annual inspection fees are $60, and your annual excise taxes are expected to average $160.
3. Gasoline is estimated to cost $2.50 per gallon and the car gets an average of 25 miles per gallon.
4. Your annual cost of parking and tolls is $3,000, your annual auto insurance is $2,000, and you can expect at least one minor accident over the next five years with your insurance deductible being $500.
5. Tires cost $100 each and must be replaced every 35,000 miles.
6. Oil changes cost $30 every 3,000 miles. Minor tune-ups are done every 15,000 miles and cost $300 each, including the oil change. Major tune-ups are done every 30,000 miles and cost $600 each, including the oil change and the minor tune-up work.
7. Wheel alignments, brakes and suspension repairs are estimated to be required every 20,000 miles and will cost $250 total.
8. A new battery will be needed every three years at $100.
9. You will have to replace the muffler every 36,000 miles at a cost of $200 each.
10. Other repair work, such as to the electrical system, alternator, windshield wipers, bulbs, etc. is expected to total $750 over the life of the vehicle.
Required: calculate your budgeted cost per mile of purchasing, owning, and driving this vehicle over the five years.