Predicted Reduction in Activity Units Predetermined Overhead Allocation Rete per Unit Activity Inspection of incoming raw materials Inspection of finished goods Number of defective units discovered in-house Number of defective units discovered by customers Lost profits due ta dissatisfied customers 390 19 390 1,200 325 50 72 75 102
Predicted Reduction in Activity Units Predetermined Overhead Allocation Rete per Unit Activity Inspection of incoming raw materials Inspection of finished goods Number of defective units discovered in-house Number of defective units discovered by customers Lost profits due ta dissatisfied customers 390 19 390 1,200 325 50 72 75 102
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter3: Process Cost Systems
Section: Chapter Questions
Problem 12E: a. Based on the data in Exercise 17-11, determine the following: 1. Cost of beginning work in...
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Question
Analyzing costs of quality
Stella, Inc. is using, a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella’s senior managers expect the engineering work to reduce appraisal, internal failure and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predeter—mined overhead allocation rates for each activity.
Requirements
- Calculate the predicted quality cost savings from the design engineering Work.
- Stella spent $103,000 on design engineering for the new skateboard. What is the net benefit of this “preventive” quality activity?
- What major difficulty would Stella’s managers have in implementing this costs-of-quality approach? What alternative approach could they use to measure quality improvement?
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