In 20x4, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 20x5, the
Question:
Tru-Delites management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of 20x9, Tru-Delites sales are projected to grow to $750,000. The projected relative distribution of quality costs at the end of 20x9 is as follows:
Scrap¦¦¦¦¦¦¦¦¦¦¦¦¦..15%
Training program¦¦¦¦¦¦..20
Supplier evaluation¦¦¦¦¦..25
Test labor¦¦¦¦¦¦¦¦¦¦¦.25
Inspection labor¦¦¦¦¦¦¦..15
Total quality costs¦¦¦¦¦..100%
Required:
1. Profits increased by what amount due to quality improvements made in 20x5?
2. Prepare a long-range performance report that compares the quality costs incurred at the end of 20x5 with the quality cost structure expected at the end of 20x9.
3. Are the targeted costs in the year 20x9 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 20x9 if the 2.5 percent performance standard is met in that year?
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Cornerstones of Cost Management
ISBN: 978-1305970663
4th edition
Authors: Don R. Hansen, Maryanne M. Mowen