Earlier in the year, the Randy Company began a quality improvement program.The program was successful in reducing
Question:
Earlier in the year, the Randy Company began 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 was collected for the current year and prior years:
Last year | current year | |
Sales | $5,000,000 | $5,000,000 |
quality training | 6,000 | 9,000 |
material inspections | 15,000 | 12,000 |
Scrap | 80.000 | 60.000 |
Redo | 15,000 | 12,000 |
product inspection | 25,000 | 30,000 |
product warranty | 150.000 | 120,000 |
Required:
a. | Calculate each category of quality costs as a percentage of sales for each year. |
prevention costs | |
Evaluation costs | |
Internal failure costs | |
External failure costs | |
b. | How much has profit increased as a result of quality improvements? |
C. | If quality costs can be reduced to 2.5 percent of sales, how much additional profit would result? |
Cornerstones of Cost Management
ISBN: 978-1111824402
2nd edition
Authors: Don R. Hansen, Maryanne M. Mowen