Modern Inc.manufactures low-cost tables at a processing cost of $80 per table.The company produces 100 units per day and averages 90% good quality resulting in 10% defective items.Fifty percent of the defective units are reworked prior to shipment to Modern's distribution center.The rework cost is $10 per unit. If production is increased to 200 units per day,the quality productivity ratio (QPR)is
A)approximately 1.00.
B)approximately 1.10.
C)approximately 1.20.
D)approximately 1.30.

Question

Quizplus · Accepted Answer

To calculate the QPR, we need to determine the total cost of production, including rework costs, and divide it by the total number of good units produced.

For 100 units per day: 
- Total processing cost: 100 x $80 = $8,000 
- Number of good units: 100 x 0.9 = 90 
- Number of defective units: 100 x 0.1 = 10 
- Number of defective units reworked: 10 x 0.5 = 5 
- Total rework cost: 5 x $10 = $50 
- Total cost of production: $8,000 + $50 = $8,050 
- QPR: 90 / $8,050 = 0.011

For 200 units per day: 
- Total processing cost: 200 x $80 = $16,000 
- Number of good units: 200 x 0.9 = 180 
- Number of defective units: 200 x 0.1 = 20 
- Number of defective units reworked: 20 x 0.5 = 10 
- Total rework cost: 10 x $10 = $100 
- Total cost of production: $16,000 + $100 = $16,100 
- QPR: 180 / $16,100 = 0.011

Therefore, the QPR for 200 units per day is approximately 1.20 (0.011 x 100 = 1.1%). The answer is C.