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:
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. Profits increased by what amount due to quality improvements made in 2015?
2. 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.
3. Are the targeted costs in the year 2019 all value-added costs? How would you interpret the variances if the targeted costs are value-added costs?
4. What would be the profit increase in 2019 if the 2.5 percent performance standard is met in that year?

  • CreatedSeptember 01, 2015
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