results of quality improvements, Managerial Accounting

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 
(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.

Posted Date: 3/16/2013 6:24:53 AM | Location : United States

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