Davis, Inc., had the following quality costs for the years ended December 31, 2014 and 2015:

At the end of 2014, management decided to increase its investment in control costs by 50 percent for each category€™s items with the expectation that failure costs would decrease by 20 percent for each item of the failure categories. Sales were $12,000,000 for both 2014 and 2015.
Required:
1. Calculate the budgeted costs for 2015, and prepare an interim quality performance report.
2. Comment on the significance of the report. How much progress has Davis made?
3. What if sales were $12,000,000 for 2014 and $15,000,000 for 2015? What adjustment to budgeted rework costs would be made? Budgeted quality audits? Assuming the actual costs for 2015 do not change, what does this adjustment say about Davis€™s performance?

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2014 2015 Prevention costs: Quality audits Vendor certification 60,000 120,000 S 90,000 180,000 Appraisal costs Product acceptance Process acceptance 90,000 75,000 S135,000 109,500 Internal failure costs: Retesting Rework $102,000 216,000 S 90,000 180,000 External failure costs Recalls Warranty $150,000 330,000 S120,000 300,000