B. Tradeoffs with Quality Costs. Consider the following problem. Banga, Inc. is a startup company engaged in the production of a biofertilizer. It has a sales of 8 million and quality costs of 1.6 million. Consistent with their vision of sustainability by reducing wastes and preventing risks, it is embarking on a major quality improvement program. During the next three years, Banga intends to attack failure costs by increasing its appraisal and prevention costs. The "right" prevention activities will be selected, and appraisal costs will be reduced according to the results achieved. For the year 2023, management is considering six specific activities: quality training, process control, product inspection, supplier evaluation, prototype testing, and re-design of two major products. To encourage managers to focus on reducing non- value-added quality costs and select the right activities, a bonus pool is established relating to the reduction of quality costs. The bonus pool is equal to 10 per cent of the total reduction in quality costs. Current quality costs and the costs of these six activities are provided in the table below. Each activity is added sequentially so that its effect on the cost categories can be assessed. For example, after quality training is added, the control costs increase to 320, 000, and the failure costs drop to 1, 040, 000. Even though the activities are presented sequentially, they are totally independent of each other. Thus, only beneficial activities need to be selected. Control Costs 1. 2 Current quality costs Quality training Process control Product inspection Supplier evaluation. Prototype testing Engineering re-design 160,000 320,000 520, 000 600,000 720,000 960,000 1,000,000 Failure Costs b. .Given the activities selected in (1), calculate the following a. The reduction in quality costs 1,440,000 1,040,000 Identify the control activities that should be implemented, and calculate the total quality costs associated with this selection. Assume that an activity is selected only if it increases the bonus pool. 720,000 656,000 200,000 120,000 40,000 b. The percentage distribution for control and failure costs. How do you compare this with the current scenario? What are your insights about this change? c. The amount of bonus pool for 2023 3. Suppose that a quality engineer complained about the gainsharing incentive system. Basically, he argued that the bonus should be based only on reductions of failure and appraisal costs. In this way, investment in prevention activities would be encouraged, and eventually, failure and appraisal costs would be eliminated. After eliminating the non-value-added costs, focus could then be placed on the level of prevention costs. a. If this approach were adopted, what activities would be selected? How much would be the bonus pool? Do you agree or disagree with this approach. Explain.