Question

Total Cost of Quality The Duquesne Motor Company makes and sells 95,000 motors a year. Their average cost per unit is Material - $2,000 Labor - $7,000 Total Production Cost $9,000 The units sell for $18,000 each Inspection of each unit costs $125 Testing is $200 per unit Average rework and repair per unit during the year is $95 Average scrappage of units is $75 Quality training costs $5,000 per month Warranty cost averages 3% of revenue (warranty is usually

based on selling price not cost - total revenue)

Returns average 2% of revenue (returns are also based on selling price - total revenue)

What is the Total COQ for the Duquesne Motor Company for one year?

Answer 1

The Total Cost of Quality (COQ) for the Duquesne Motor Company for one year amounts to $55,635,000, which is the sum of inspection, testing, rework, repair, scrappage, quality training, warranty, and returns costs.

Step-by-step explanation:

To calculate the Total Cost of Quality (COQ) for the Duquesne Motor Company, we must add up all costs related to ensuring quality, which include inspection, testing, rework and repair, scrappage, quality training, warranty, and returns.

• Inspection cost: 95,000 units × $125 per unit = $11,875,000
• Testing cost: 95,000 units × $200 per unit = $19,000,000
• Rework and repair: 95,000 units × $95 per unit = $9,025,000
• Scrappage: 95,000 units × $75 per unit = $7,125,000
• Quality training: $5,000 per month × 12 months = $60,000
• Warranty cost: 3% of total revenue ($18,000 × 95,000) = $5,130,000
• Returns: 2% of total revenue ($18,000 × 95,000) = $3,420,000

Adding these costs gives us the total COQ:

$11,875,000 (inspection) + $19,000,000 (testing) + $9,025,000 (rework/repair) + $7,125,000 (scrappage) + $60,000 (training) + $5,130,000 (warranty) + $3,420,000 (returns) = $55,635,000 as the Total COQ for one year.