Verizon Manufacturing Company Spent $400,000 in 2019 to Inspect Incoming

question 92

Multiple Choice

Verizon Manufacturing Company spent $400,000 in 2019 to inspect incoming components. Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2019, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ) , Verizon contracted Quality-is-Free Consultants, Inc. (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training related to the inspection/appraisal process and $150,000 for inspection equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2020 for the project. Verizon expects no changes in its operating level in the foreseeable future.

What is the expected net change in total cost of quality (COQ) projected for 2020?

• A) $400,000 decrease.
• B) $290,000 decrease.
• C) $550,000 decrease.
• D) $560,000 decrease.
• E) $580,000 decrease.

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Definitions:

Quid Pro Quo

A Latin term meaning "something for something," referring to a mutual exchange where one thing is provided in return for another.

Hostile Work Environment

A workplace situation where an employee feels uncomfortable or unsafe due to discriminatory behavior or harassment.

Sexual Harassment

Unwanted sexual advances, requests for sexual favors, or other verbal or physical harassment of a sexual nature, often occurring in the workplace.

Title VII

Title VII is a federal law that prohibits employment discrimination based on race, color, religion, sex, and national origin.