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At the starting of the year, Asquith Company Ltd initiated a quality improvement program. The program was successful in decreasing scrap and rework costs. To help assess the impact of the quality improvement program, Asquith's managers collected the following data for the current and preceding year: Preceding year Current year Sales $10,000,000 $10,000,000 Quality training 45,000 50,000 Materials inspection 100,000 140,000 Scrap 500,000 450,000 Product warranty 900,000 800,000 Rework 750,000 600,000 Product inspection 200,000 220,000 Required: (A) Compute prevention costs, appraisal costs, internal failure costs and external failure costs as a percentage of sales in separate tables for the preceding year and the current year. (B) How much has profit increased as a result of quality improvements? (C) If quality costs can be reduced even further to 2.5% of sales, how much additional profit would result? Is there any evidence to suggest this reduction in quality costs may be feasible? Describe.
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