Question

La Queue Company is experiencing problems with the handle on the carafe of its Euro-design coffeemaker. The handle breaks and must be replaced 5 percent of the time. It costs €50 each time to replace the carafe. La Queue replaces the carafe and ships it by express courier to appease customers who cannot use their coffeemakers while awaiting a replacement. La Queue is considering the use of a specialty plastic for the handle that would not break, even under extreme use. The new plastic would increase its production costs by €10,000 per year. An alternative to the new plastic is to examine each carafe to see if the handle is defective. It would cost €3 per carafe to add this inspection. This year, La Queue plans to manufacture and sell an additional 5,000 coffeemakers. Next year, it plans to replace the model with a new design.

What should La Queue do?

Answer 1

	The cost incurred by La Queue company in different alternatives are
1)	If handle is defective which is 5% of the time
	5000*5%	250
	Cost of replacement	50
		12500
2)	If specialty plastic handle is use, increase in production costs	10000
3)	If each carafe is examine cost would be (5000*3)	15000
	La queue company should use speciality plastic handle as an alternative for defective handle. This will help in saving cost by euro 5000 oif each carafe is examine or savings of Euro 2500 if handles are replaced