uper Shoes Limited manufactures and sells running shoes. The materials hine sewed. to dlE the shoes are bought in bulk, cut to size, assembled and then machine Ele dre a number of competitors in the running shoe market. Some of these compe Charge lower price, but supply a low quality runnine shoe. Others supply high qualnty SiO than Super Shoes for a higher quality price.

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Super Shoes is preparing their budget for the following year and has estimated that tne market demand for the running shoes will be 200 000 pairs of shoes, and its share will De 40 000 pairs, which is equal to 20% of the available market. The standard cost details ror each pair of running shoes is given in the following table:

N$ per unit N$ per unit 240 180 Selling price_ Less: Variable costs Materials Assembly and sewing cost | Delivery cost Contribution

60 100 |20 | 60

An analysis of Super Shoes's recent performance revealed that 4% of the running shoes supplied to customers were returned to be replaced free of charge due to faults in the manufacturing. An investigation of the faulty shoes showed that the damage had occurred during assembly. The faulty shoes could not be repaired and have no scrap value. If the supply of faulty running shoes can be eliminated, there will be an improved customer perception that will lead to Super Shoes gaining 30% of the market. REQUIRED: 1.5. Using Super Shoes as an example, discuss quality conformance costs and quality non-conformance costs and the relationship between them. 1.6.

Marks 8 Assume that Super Shoes continues with its present system, and the percentage of quality failings remains the same as stated above: a) Calculate the total relevant costs of quality for the coming year based on the budgeted figures and sales returns rate b) Calculate the maximum savings that could be made by implementing an inspection process for the running shoes, immediately before the goods are delivered. 4 2