At the Beginning of the Year, Custom Choppers Company Initiated

Essay

At the beginning of the year, Custom Choppers 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: $\begin{array}{lrr}&\text { Freceding Year}&\text { Current Year }\\\text { Sales } & \$ 5,000,000 & \$ 5,000,000 \\\text { Quality training } & 22,500 & 25,000 \\\text { Material inspections } & 50,000 & 80,000 \\\text { Scrap } & 250,000 & 225,000 \\\text { Product warranty } & 450,000 & 400,000 \\\text { Rework } & 375,000 & 300,000 \\\text { Product inspection } & 100,000 & 100,000\end{array}$
Required:
a.Compute each category of quality costs as a percentage of sales for each year.Prevention costs
Appraisal costs
Internal failure costs
External failure costs
b.How much has profit increased as a result of quality improvements?
c.If quality costs can be reduced to 2.5 percent of sales, how much additional profit would result?