Answer Happy

Crimson Ltd (CL) is a manufacturer who is famous for making
Sierra, a voice-controlled AI-enabled virtual assistant. On
average, the company makes and sells 6,000 Sierra each year.
In 2021, CL decided to invest in a quality management
programme to further improve the quality of Sierra.
As part of the above programme, CL is considering replacing
the microchip in Sierra. The improved model will incur an
additional cost of $130 per unit. It is believed that the
improved product will lead to the following savings:
• reduction of 6,000 rework hours;
• saving of 1,200 hours of customer support; and
• reduction of 1,250 hours of warranty repairs.
CL anticipates that with the improved product quality, an
additional 3,000 Sierras can be sold in the year, leading to
an increased contribution margin of 300,000.
The following data is related to the costs of rework and repair
for CL’s products:
The proposed change only leads to improved product quality and
will
not affect any of the fixed rework or repair costs.
Required:
a) Determine if CL should replace the microchip in Sierra. Show
all your calculations clearly.
b) For some reason, CL seems apprehensive regarding the
increased sales if a new microchip is to be fitted in a
Sierra. Comment on whether it is necessary for CL to achieve
additional sales to justify replacing the microchip in
Sierra.
c) Discuss the non-financial factors that CL should consider
when deciding whether to replace the microchip or not.
d) Identify the four categories of the cost of quality that are
relevant to the operation of CL.
e) Discuss the specific areas that CL should focus on in
connection with its quality management programme.