Question 1 Rolling Stones Inc. assembles and sells racing bicycles. In an attempt to improve profit, during the latest year Rolling Stones Inc. reduced the training it provided to its manufacturing staff. The following actual selling price and cost information is available for the latest year: $ per bicycle 1 350 820 85 Selling price Frame cost Other material cost Assembly cost Delivery cost Contribution 100 15 330 Annual quality cost information for the latest year Inspection costs R2,300,000 (manufacturing) Staff training costs R780,00 Total cost of dismantling (this includes the collection cost of the faulty bicycle at and reassembling per bike R200 R20) Estimated market size 2,500,000 (number of bicycles) Additional information for the latest year: 3,000 completed bicycles were found to have a faulty frame before delivery to the customer. Each faulty frame had to be replaced and the bicycle had to be reassembled. Rolling Stones Inc. is unable to recover the cost of faulty frames from the supplier as the supplier has gone into liquidation. Rolling Stones Inc. had to replace 1,500 bicycles that had already been delivered to customers due to a failure of the frame. The management team at Rolling Stones Inc. estimated that its market share fell to 8% from a forecast 8.5% due to adverse consumer reaction as a result of criticism in the bicycle racing press (this indudes the collection cost of the faulty bicyde at and reassembling per bike R200 R20) Estimated market size 2,500,000 (number of bicydes) Additional information for the latest year: 3,000 completed bicycles were found to have a faulty frame before delivery to the customer. Each faulty frame had to be replaced and the bicyde had to be reassembled. Rolling Stones Inc. is unable to recover the cost of faulty frames from the supplier as the supplier has gone into liquidation. Rolling Stones Inc. had to replace 1,500 bicydes that had already been delivered to customers due to a failure of the frame. The management team at Rolling Stones Inc. estimated that its market share fell to 8% from a forecast 8.5% due to adverse consumer reaction as a result of criticism in the bicycle racing press. 40 Required: (a) Prepare a cost of quality report for Rolling Stones Inc. for the latest year under appropriate headings. (6 marks) (b) Discuss, using the above information, the relationship between conformance costs and non-conformance costs. (4 marks)