For supply item abc, andrews company has been ordering 125 units

Problem 1 – The Door Company manufactures doors. Classify each of the following quality costs as prevention costs, appraisal costs, internal failure costs, or external failure costs.

  1. Retesting of reworked products
  2. Downtime due to quality problems
  3. Analysis of the cause of defects in production
  4. Depreciation of test equipment
  5. Warranty repairs
  6. Lost sales arising from a reputation for poor quality
  7. Quality circles
  8. Rework direct manufacturing labor and overhead
  9. Net cost of spoilage
  10. Technical support provided to suppliers
  11. Audits of the effectiveness of the quality system
  12. Plant utilities in the inspection area
  13. Reentering data because of keypunch errors

Problem 2 – For supply item ABC, Andrews Company has been ordering 125 units based on the recommendation of the salesperson who calls on the company monthly. A new purchasing agent has been hired by the company who wants to start using the economic-order-quantity method and its supporting decision elements. She has gathered the following information:

Annual demand in units

250

Days used per year

250

Lead time, in days

10

Ordering costs

$100

Annual unit carrying costs

$20

Determine the EOQ, average inventory, orders per year, average daily demand, reorder point, annual ordering costs, and annual carrying costs.

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