Reference no: EM132540088

Rasmussen Video Systems (RVS) manufactures wireless home theatre systems and incurred sales of $8.9 million in the year. RVS has the following information pertaining to quality costs (in $000s):

Quality cost category                   Item                                    Amount

Internal failure                             Scrap                               160

Internal failure                           Rework costs                        150

Appraisal                                  Incoming materials inspection      20

Prevention                                Training                                  15

External failure                        Warranty repair                           200

Prevention                                 Supplier evaluations                     45

Appraisal                                    Line inspection                         85

External failure                            Customer support                       60

Internal failure                                Breakdown maintenance                50

Appraisal                                      Product testing                              40

• The Director of Operations has suggested changes to the manufacturing process that will cost $1,500,000, but will reduce the amount of scrap and rework by 35%. Furthermore, line inspection costs can be reduced by 15%.

Question 1: If the changes were to proceed and the $1,500,000 investment is made, what are the new appraisal costs as a percentage of sales?