At the beginning of the year, Nevermore, Inc., initiated a quality improvement program. The program was...

Transcribed Image Text:

At the beginning of the year, Nevermore, Inc., 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: Sales Preceding Year Current Year $2,000,000 $2,000,000 Quality circles (Prevention) 9,000 10,000 Packaging inspections (Appraisal) 20,000 32,000 Scrap (Internal failure) 100,000 90,000 Lost sales (External failure) 180,000 160,000 Downtime (Internal failure) 125,000 120,000 Product inspection (Appraisal) 40,000 90,000 Required: a. Compute each category of quality costs as a percentage of sales for each year. Prevention costs Appraisal costs Internal failure costs External failure costs b. How much has profit increased or decreased as a result of quality improvements? If quality costs can be reduced to 2.0 percent of sales, how much additional profit (in relation to C. the "Current Year") would result? At the beginning of the year, Nevermore, Inc., 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: Sales Preceding Year Current Year $2,000,000 $2,000,000 Quality circles (Prevention) 9,000 10,000 Packaging inspections (Appraisal) 20,000 32,000 Scrap (Internal failure) 100,000 90,000 Lost sales (External failure) 180,000 160,000 Downtime (Internal failure) 125,000 120,000 Product inspection (Appraisal) 40,000 90,000 Required: a. Compute each category of quality costs as a percentage of sales for each year. Prevention costs Appraisal costs Internal failure costs External failure costs b. How much has profit increased or decreased as a result of quality improvements? If quality costs can be reduced to 2.0 percent of sales, how much additional profit (in relation to C. the "Current Year") would result?