The Omega Shoe Company manufactures a number of different styles of athletic sho

Question

The Omega Shoe Company manufactures a number of different styles of athletic shoes. Its biggest seller is the XPacer running shoe. In 2008 Omega implemented a quality-management program. The company’s shoe production for the past three years and manufacturing costs are as follows.Year 2008 2009 2010 Units produced/input 32,000 34,600 35,500 Manufacturing cost $278,000 291,000 305,000 Percent good quality 78% 83% 90%Only one-quarter of the defective shoes can be reworked, at a cost of $2 apiece. Compute the manufacturing cost per good product for each of the three years and indicate the annual percentage increase or decrease resulting from the qualitymanagement program.

Explanation / Answer

As per Omega Company Sales of X pacer shoes Sale Stats

Calculation of Good Quality Shoes as per stats

For the Year        Units Manufactured         % Good quality Shoes       Good Quality Shoes (Nos)          

2008                           32000                                  78%                                   24960                         2009                           34600                                  83%                     28716                      2010                           35500                                  90%                               31950                             

Calculation of Defected Shoes as per stats

For the Year        Units Manufactured        % defected Shoes       Defected Shoes Product    

2008                           32000                                100-78=22%                               7040 2009                           34600                              100-83=17%                                 5882 2010                           35500                                  100-90=10%                                   3550

Calculation of Rework shoes

For the Year        Defected Shoes Product        One Quater can be reworked         Reworked Shoes  

2008                             7040                                7040*1/4                               1760 2009                           5882                              5882*1/4                               1470.5 2010                             3550                                  3550*1/4                                    887.5

Calculation of Rework costing @ 2$ per piece

For the Year       Reworked Shoes       Costing for Rework @ 2$ per piece        

2008                           1760                                                       1760*2=3520$           2009                         1470.5                        1470.5*2=2941$                        2010                                              887.5                              887.5*2=1775$                           

Calculation of Total Manufacturing cost after rework

For the Year       Manufaturing cost as per company        Rework Costing piece     Total Manufacturing cost

2008                           278000$                                           3520$            281520    2009                         291000$                     2941$         293941 2010                                     305000$                   1775$                                   306775

Calculation of Manufacturing cost per piece after rework

For the Year          Total Manufaturing cost          Total Unit Produced    Manufacturing cost per piece

2008                           281520$                            32000               8.80$    2009                         293941$          34600          8.50$ 2010                                     306775$                    35500                                8.64$

Calculation of rework shoes left after rework of quality management program

For the Year    Total defected shoes                 Reworked shoes               Remaining Defected Pcs      

2008                                   7040                                       1760       5280 2009                     5882       1470.5               4411.5    2010                     3550                       887.5                           2662.5                     

Calculation of rework shoes left after rework of quality management program

For the Year    Remaining Defected Shoes     Total Unit Produced    %age good Quality Produced after rework

2008                                  5280                             32000    =(32000-5280)*100/32000 = 83.5%     2009                    4411.5            34600           =(34600-4411.5)*100/34600=87.24%    2010                    2662.5                   35500                    =(35500-2662.5)*100/35500=92.5%

Comparision of Quality Management program

For the Year    % good Quality Shoes      % good Quality shoes after rework

2008                                 78%                            83.5%    2009                 83%             87.24%       2010                   90%                           92.5%

There is a increase in the percentage of good quality product every year but decrease in the quantity of good quality product as compare to the last year.

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