1. At the beginning of the year, Donjuan Company initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data were collected for the current and preceding years:
Preceding Year-
Current Year
Sales
$4,000,000
$4,000,000
Quality training
10,000
15,000
Materials inspection
25,000
35,000
Scrap
200,000
180,000
Rework
250,000
200,000
Product inspection
40,000
60,000
Product warranty
40,000
60,000
Product warranty
300,000
250,000
1. Classify each of the costs as prevention costs, appraisal costs, internal failure costs, or external failure costs: (a)quality training; (b)materials inspection; (c)scrap; (d)rework; (e) product inspection; (f) product warranty.
2. Compute each category of quality costs as a percentage of sales:
Preceding Year
Current Year
Prevention costs
Appraisal costs
Internal failure costs
External failure costs
3. (a) How much has profit increased as a result of quality improvement?
(b) If quality costs can be reduced to 2.5 percent of sales, how much additional profit will result?