What would be the cost of increasing the quality

Assignment Help Accounting Basics

Reference no: EM131972250

Problem

Safe Rider produces car seats for children from newborn to 2 years old. The company is worried because one of its competitors has recently come under public scrutiny because of product failure. Historically, Safe Rider's only problem with its car seats was stitching in the straps. Safe Rider has discovered a more serious problem with the plastic core of its car seats. An accident can cause the plastic in some of the seats to crack and? break, resulting in serious injuries to the occupant. It is estimated that this problem will affect about 150 car seats in the next year. This problem could be corrected by using a higher quality of plastic that would increase the cost of every car seat produced by $ 40.

If this problem is not? corrected, Safe Ride estimates that out of the 150 car seats? affected, customers will realize that the problem is due to a defect in the seats in only eight cases.

Safe RiderSafe Rider?'s legal team has estimated that each of these eight accidents would result in a lawsuit that could be settled for about $775,000. All lawsuits settled would include a confidentiality? clause, soSafe Rider?s reputation would not be affected.

Requirement

1. Assuming that Safe Rider expects to sell 225,000 car seats next year, what would be the cost of increasing the quality of all 225,000 car seats?

Reference no: EM131972250

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