Calculating Total Cost of Quality for Duquesne Motor Company
Calculating Total COQ:
Appraisal costs (total of inspection and testing):
Appraisal costs per unit = Inspection cost + Testing cost = $125 + $200 = $325
Number of units produced per year = 95,000
Total appraisal costs for one year = $325 * 95,000 = $30,875,000
Appraisal costs: $30,875,000
Prevention Costs:
Total Production Cost per unit = $9,000
Prevention Costs per unit = Material + Labor + Quality Training Costs = $2,000 + $7,000 + $5,000 = $14,000
Prevention Costs for one year = $14,000 * 95,000 = $1,330,000,000
Internal Failure Costs:
Average rework and repair per unit during the year = $95
Internal Failure Costs for one year = $95 * 95,000 = $9,025,000
External Failure Costs:
Warranty cost (3% of revenue) = 3% of ($18,000 * 95,000) = $51,300,000
Returns (2% of revenue) = 2% of ($18,000 * 95,000) = $34,200,000
External Failure Costs for one year = $51,300,000 + $34,200,000 = $85,500,000
Total COQ:
Total COQ = $30,875,000 + $1,330,000,000 + $9,025,000 + $85,500,000 = $1,455,400,000
Therefore, the Total Cost of Quality for the Duquesne Motor Company for one year is $1,455,400,000.