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SUMMARY PROBLEM 3 EZ-Rider Motorcycles is thinking about expanding into Germany. If gas prices increase, the com- pany expects more interest in fuel-efficient transportation, such as motorcycles. As a result, the company is considering setting up a motorcycle assembly plant on the outskirts of Berlin. EZ-Rider Motorcycles estimates it will cost $850,000 to convert an existing building to motorcycle production. Workers will need training, at a total cost of $65,000. The additional costs to organize the business and to establish relationships are estimated to be $150,000. 30 CHAPTER 1 The CEO believes the company can earn sales profits from this expansion (before consider- ing the costs in the preceding paragraph) of $1,624,000. Requirement Use cost-benefit analysis to determine whether EZ-Rider should expand into Germany. tv SUMMARY PROBLEM 2 .......... The CEO of Edmonton Auto Parts (EAP) is concerned with the quality of its products and the amount of resources currently spent on customer returns. The CEO would like to analyze the costs incurred in conjunction with the quality of the product. The following cost information was collected from various departments within the company: Warranty returns .... $120,000 Training personnel 10,000 175,000 Litigation on product liability claims........ 5,000 Inspecting 10% of final products 10,000 Rework .......... 45,000 Production loss due to machine breakdown. $5,000 Inspection of raw materials...... Requirements 1. Prepare a cost of Quality Report. In addition to listing the costs by category, determine the percentage of the total cost of quality incurred in each cost category. Do any additional subjective costs appear to be missing from the report? What can be learned from the report? 2. 3

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