The manager at the Trailer Manufacturing plant has the option to continue to inspect, or redesign. Listed below are the estimated effects of quality improvement on costs of quality report obtained by the managerial accountant.
Estimated Effects of Quality Improvement on Costs of Quality
Inspection Option
Relevant items Relevant Benefit per unit Quantity Total Benefits
Savings in rework costs $25 per hour 20,000 hours ?
Savings in customer
support costs $12 per hour 30,000 hours ?
Savings in transportation cost $15 per load 25,000 loads ?
Savings in warranty repair cost $12 per hour 10,000 hours ?
Total contribution margin $5,000 per trailer 225 trailers ?
from original sales
Redesign Option Quantity Benefits
Savings in rework costs 31,000 hours ?
Savings in customer 38,000 hours ?
support costs
Savings in transportation cost 26,000 loads ?
Savings in warranty repair cost 34,000 hours ?
Total contribution margin 275 trailers ?
from original sales
The manager must determine and compare the inspection option, or the option to redesign.
Required:
Compute and compare the total contribution margins of the inspection option and the redesign option. Should the manager choose the inspection option or the redesign option? Show all work.
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