Please Help me answer the following seven questions: Assume you manage an auto r
ID: 2619917 • Letter: P
Question
Please Help me answer the following seven questions:
Assume you manage an auto repair shop that earns $750,000 per year in revenues, generating $150,000 per year of profits on overall operating costs of $600,000. Assume your COPQ is 20% of overall operating costs.
What factors or activities may contribute to the COPQ at an auto repair shop?
You and your mechanics have identified projects costing $25,000 (equipment, tools, training) that would likely cut in half the COPQ. What would be your new overall operating costs? What would be your new profit? Explain your reasoning for both answers.
Should you spend the money on these projects? Explain. How much would you be willing to spend on one-time projects intended to cut the cost-of-poor-quality by half for the foreseeable future?
Assume you decided to fund the projects mentioned in Question 3 above but the costs were only reduced by 25%, not by half. Was it still worthwhile? Explain. Remember, you only incur the costs one time but you reap the savings for several years.
Assume the projects were completely successful, cutting the COPQ in half. Explain how this affects your pricing options.
Thank you and appreciate your help!
Explanation / Answer
What factors or activities may contribute to the COPQ at an auto repair shop?
Mechanics’ fault or knowledge
Faulty spare parts or equipment or tools
Rodents
What would be your new overall operating costs?
=600000*0.8+25000+600000*0.2/2=565000
What would be your new profit?
=750000-565000=185000
Should you spend the money on these projects?
Yes, because the projects increase total profit
How much would you be willing to spend on one-time projects intended to cut the cost-of-poor-quality by half for the foreseeable future?
=750000-150000-600000*0.8-600000*0.2/2=60000
Assume you decided to fund the projects mentioned in Question 3 above but the costs were only reduced by 25%, not by half. Was it still worthwhile?
=750000-25000-600000*0.8-600000*0.2*0.75=155000..Yes, profits still increase.
Assume the projects were completely successful, cutting the COPQ in half. Explain how this affects your pricing options.
Profits increase when COPQ comes down by half then one can increase the prices charged to customers because of low error rate and hence good reputation.. Alternatively, one can lower the prices to lure more customers and absorb the cost incurred for cutting COPQ.