How much additional profit will result

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Reference no: EM13513730

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?

Reference no: EM13513730

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