Reference no: EM132605138
Thermal Heat Industries Inc. (THI) manufactures hot water tanks. Two of their top-of-the-line products are the Aestus and the Fuoco. The industrial engineer that has overseen the design and implementation of the manufacturing of these two products would like a quality report.
You have gathered the following information:
Aestus Fuoco
Units manufactured and sold 5,000 2500
Selling price per unit $1,920 $1,440
Variable costs per unit $1,152 $768
Hours spent on quality design 2,800 500
Testing and inspection hrs per unit 1 0.5
% of units reworked in the plant 4% 10%
Rework costs per hot water tank $410 $385
% of units under warranty
repaired at customer site 3% 8%
Warranty repair costs per hot
water tank $480 $430
Estimated lost sales (in units) from poor quality 160
Labour rates:
Design - $90 per hour
Testing - $48 per hour
Required:
Question a. Do a cost of quality report for THI. The report should list all cost items categorized by type of quality cost, including percentages in relation to revenues for each product and category.
Question b. Explain to results to the industrial engineer of THI. Provide a recommendation for quality cost improvement at THI.