D.B. Smith Company recycles computers. It buys them and salvaged parts and materials from the obsolete systems. It considers that it has done a “quality” job if it can salvage 60 percent of the “book value” of equipment that it buys. The book value of a particular lot that it bought was $1,700,000. What conclusions can be drawn from the cost data incurred in processing the lot, as found below? Customer returns are simply scrapped and replaced. Be sure and specify your assumptions about categories of quality
Cost Category
Amount Quality equipment design $ 23,000
Scrap $325,000
Inspection and test $300,000
Customer returns $95,000
Supplier quality surveys $7,000
Repair $75,000