Quality Improvement

Quality improvement.Designer Frames makes bicycle frames in two processes,tubing and welding.The tubing process has a capacity of 40,000 units per year;welding has a capacity of 75,000 units per year.Cost information follows:

The company enjoys high demand for its products.Designer Frames can sell whatever output it can produce for the market price of $53 per frame.Designer Frames can start only 50,000 units into production in the tubing department because of capacity constraints on the tubing machines.The company scraps all defective units produced in the tubing department.Of the 40,000 units started in the tubing operation,4,000 units (10 percent)are scrapped at the end of the production process.Scrap costs,based on total (fixed and variable)manufacturing costs incurred in the tubing operation,equal $35 per unit as follows:

The "$10 fixed cost" is the portion of the total fixed costs of $400,000 allocated to each unit,whether good or defective.The good units from the tubing department are sent to the welding department.Variable manufacturing costs in the welding department are $2.00 per unit.There is no scrap in the welding department.Therefore,Designer Frames' total sales quantity equals the tubing department's output.Designer Frames incurs no other variable costs.Designer Frames' designers have discovered that using a different type of material in the tubing operation would reduce scrap to zero,but it would increase the variable costs per unit in the tubing department by $2.50.Recall that only 40,000 units can be
started each year.
Required:
a.What is the additional direct materials cost of implementing the new method?
b.What is the additional benefit to Designer Frames from using the new material and improving quality?
c.Should Designer Frames use the new materials?
d.What other nonfinancial and qualitative factors should Designer Frames consider in making the decision?
(Designer Frames;Quality improvement. )