Christi, Inc., is using a costs-of-quality approach to evaluate design engineering efforts

| February 25, 2017

Question
Analyzing costs of quality

Christi, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Christi’s senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the 2-year life of the skateboards follow. Also shown are the cost allocation rates for each activity.

Activity

Predicted Reduction in Activity Units

Activity Cost Allocation Rate Per Unit

Inspection of incoming materials

420

$ 37

Inspection of finished goods

420

26

Number of defective units

discovered in-house

1,400

56

Number of defective units

discovered by customers

325

75

Lost sales to dissatisfied customers

150

103

Requirements

1. What are the major features of a JIT production system such as that of High Point?

2. Prepare summary journal entries for February. Under- or over allocated conversion costs are closed to Cost of goods sold monthly.

3. Use a T-account to determine the February 29, 2012, balance of Raw and in-process inventory.

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