1. A manufacturing company produces luggage. At the end of the year, its annual costs relating to quality are as follows: Inspection at the end of the production process: $20,000 Scrap from the production process: $18,000 Design work for product improvement: $24,000 Total costs related to customer complaints: $40,000 Employee training: $12,000 Incoming raw material inspection: $10,000 First, classify each of the above as prevention costs, appraisal costs, internal failure costs, or external failure costs. Next, suppose that the company has determined that if they increase employee training costs by $15,000, they expect to reduce all failure costs by 20%. Should MNO Company increase their training costs? Show your calculations and explain. 2. Determine the total cost of purchasing and owning a car over the next 5 years given the following information and assuming that you will drive it 15,000 miles per year: – Purchase price of your new Kia is $20,000. You put 20% cash down and finance the rest over five years with total financing costs equaling $2,400. At the end of year 5 you can sell it for $3,500. – You live in Massachusetts so your sales tax rate is 6.25% on the new vehicle (sales taxes are already factored into all of your other costs), your annual registration fees are $100, your annual inspection fees are $60, and your annual excise taxes are expected to average $160. – Gasoline is estimated to cost $3.50 per gallon and the car gets an average of 25 miles per gallon.

– Your annual cost of parking and tolls is $3,000, your annual auto insurance is $2,000, and you can expect at least one minor accident over the next five years with your insurance deductible being $500. – Tires cost $200 each and must be replaced every 35,000 miles. – Oil changes cost $55 every 3,750 miles. Minor tune-ups are done every 15,000 miles and cost $300 each, including the oil change. Major tune-ups are done every 30,000 miles and cost $600 each, including the oil change and the minor tune-up work. – Wheel alignments, brakes and suspension repairs are estimated to be required every 20,000 miles and will cost $250 each. – A new battery will be needed every three years at $100. – You will have to replace the muffler every 36,000 miles at a cost of $200 each. – Other repair work, such as to the electrical system, alternator, windshield wipers, bulbs, etc. is expected to total $750 over the life of the vehicle. Calculate your budgeted cost per mile of purchasing, owning, and driving this vehicle over the five years. Is it worth owning the car or is it better to use public transportation instead? Explain.