Reference no: EM131812599

Trend, Long-Range Performance Report

In 2014, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 2015, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality costs for 2014 and 2015 are as follows:

	2014	2015
Sales	$ 600,000	$ 600,000
Scrap	15,000	15,000
Rework	20,000	10,000
Training program	5,000	6,000
Consumer complaints	10,000	5,000
Lost sales, incorrect labeling	8,000	0
Test labor	12,000	8,000
Inspection labor	25,000	24,000
Supplier evaluation	15,000	13,000

Tru-Delite's management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of 2019, Tru-Delite's sales are projected to grow to $750,000. The projected relative distribution of quality costs at the end of 2019 is as follows:

Scrap	15	%
Training program	20
Supplier evaluation	25
Test labor	25
Inspection labor	15
Total quality costs	100	%

1. Prepare a long-range performance report that compares the quality costs incurred at the end of 2015 with the quality cost structure expected at the end of 2019. If an amount is zero, enter "0". Round percentages to one decimal place, when rounding is required. For example, 5.8% would be entered as "5.8". If the budget variance amount is unfavorable enter "U" in the last column of the table. Enter "F" if it is favorable, and enter "NA" if there is no budget variance. Round your answers to the nearest dollar, with two exceptions: round test labor and scrap long-range target costs down to the nearest dollar (for example, $905.90 rounds down to $905).

	actual costs 2015	long range target cost	budget variance
prevention costs:
training program	6000	3750	2250
supplier evaluation	13000	4688	8312
total prevention costs	19000	8438	10562
appraisal costs:
test labor		4687
inspection labor		2813
total appraisal costs		7500
internal failure costs:
scrap		2812
rework		0
total internal failure costs		2812
external failure costs:
consumer complaint		0
lost sales	0	0	0
total external failure		0
total quality costs		18750
percent sales		2.5%

2. What would be the profit increase in 2019 if the 2.5 percent performance standard is met in that year?

The profit increase by $