Perkins Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered: Perkins knows that if it undertakes this program, it will be able to reduce warranty repair costs by $25,000. They also know they will be able to avoid lost profits by retaining customers, but they cannot quantify that benefit with any degree of precision. Should Perkins go ahead with the quality program?

Question

Perkins Company has been experiencing lost sales and high returns recently, so they decided to undertake a comprehensive quality program. Here are factors being considered:  Perkins knows that if it undertakes this program, it will be able to reduce warranty repair costs by $25,000. They also know they will be able to avoid lost profits by retaining customers, but they cannot quantify that benefit with any degree of precision. Should Perkins go ahead with the quality program?

Quizplus · Accepted Answer

Since Perkins cannot quantify the benefit of avoiding lost profits with precision, the only criteria to determine whether or not to undertake the quality program is the $25,000 reduction in warranty repair costs. However, if the benefit of avoiding lost profits is estimated to be over $420,000, then it would be worth it for Perkins to invest in the program. Therefore, the best choice is C.

Perkins Company Has Been Experiencing Lost Sales and High Returns