Ride Gear Limited, based in Ontario, manufactures after-market accessories for m
ID: 2337667 • Letter: R
Question
Ride Gear Limited, based in Ontario, manufactures after-market accessories for motorcycles, such as fairings, hand guards, seats, and cargo carriers. In its early years of operation, Ride Gear had a reputation for outstanding product quality, which is a key determinant of success in this industry. Competition has become extremely intense in recent years, and Ride Gear has lost market share to companies based in China. In a recent survey of product quality conducted by a leading motorcycle magazine, Ride Gear slipped to fifth place among the top 10 accessory manufacturers. In response to the disappointing results from the market survey, the president of Ride Gear, Dave Rankin, decided to take action in an effort to improve product quality. One of his first steps was to set up a quality improvement team to identify key areas where changes were most needed. Rankin remembered from his managerial accounting course in university that high quality of conformance is the overall objective and that different types of quality costs can interact to improve quality. However, beyond these basic details, Rankin's recollection of quality costs was limited, so he appointed Gale Smith to lead the quality improvement team and make the changes needed to allow Ride Gear to better compete. Smith's quality improvement program has now been in operation for two years. The company's most recent quality cost report is shown below RIDE GEAR LIMITED Quality Cost Report (in thousands) Year 1Year 2 Prevention costs: Systems development Quality training Quality improvement projects $ 125 10 170 20 90 Total prevention cost 195 280 Appraisal costs: Testing and inspection of raw materials Final product testing and inspection 90 90 50 Total appraisal cost 180 95 Internal failure costs: Scrap, rework labour, and overhead Re-inspection of reworked products 150 50 70 45 Total internal failure cost 200 115 External failure costs: 150 50 70 Warranty repairs Product retums and allowances Total external failure cost 200 140 Total quality cost s 775 630Explanation / Answer
year 1
year 2
A
Prevention costs
Amount
%
%
Amount
%
%
systems development
125
4.20%
16.10%
170
5.20%
27%
Quality training
10
0.30%
1.30%
20
0.60%
3.20%
quality projects
60
2.00%
7.70%
90
2.70%
14.30%
Total prevention costs
195
6.50%
25.20%
280
8.50%
44.40%
B
Appraisal costs
Testing and inspection
90
3.00%
11.50%
45
1.40%
7.10%
Final product testing
90
3.00%
11.60%
50
1.50%
7.90%
Total appraisal
180
6.00%
23.20%
95
2.90%
15.10%
C
Internal failure costs
Scrap rework labor
150
5.00%
19.40%
70
2.10%
11.11%
Reinspection:
50
1.70%
6.50%
45
1.40%
7.10%
Total internal failure costs
200
6.70%
25.80%
115
3.50%
18.30%
D
External failure costs
Warranty repairs
150
5.00%
19.40%
45
1.40%
7.10%
Product returns
50
1.70%
6.50%
95
2.90%
15.10%
Total external failure cost
200
6.70%
25.80%
140
4.20%
22.20%
Total quality costs (A+B+C+D)
775
25.9%
100%
280
19.10%
100
Total production
$3,000
3300
Part 2
Yes
year 1
year 2
A
Prevention costs
Amount
%
%
Amount
%
%
systems development
125
4.20%
16.10%
170
5.20%
27%
Quality training
10
0.30%
1.30%
20
0.60%
3.20%
quality projects
60
2.00%
7.70%
90
2.70%
14.30%
Total prevention costs
195
6.50%
25.20%
280
8.50%
44.40%
B
Appraisal costs
Testing and inspection
90
3.00%
11.50%
45
1.40%
7.10%
Final product testing
90
3.00%
11.60%
50
1.50%
7.90%
Total appraisal
180
6.00%
23.20%
95
2.90%
15.10%
C
Internal failure costs
Scrap rework labor
150
5.00%
19.40%
70
2.10%
11.11%
Reinspection:
50
1.70%
6.50%
45
1.40%
7.10%
Total internal failure costs
200
6.70%
25.80%
115
3.50%
18.30%
D
External failure costs
Warranty repairs
150
5.00%
19.40%
45
1.40%
7.10%
Product returns
50
1.70%
6.50%
95
2.90%
15.10%
Total external failure cost
200
6.70%
25.80%
140
4.20%
22.20%
Total quality costs (A+B+C+D)
775
25.9%
100%
280
19.10%
100
Total production
$3,000
3300
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