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At the beginning of Year 1, Kare Company initiated a quality improvement program. Considerable effort was expended over two years to reduce the number of defective units produced. By the end of the second year, reports from the production manager revealed that scrap and rework had both decreased. The president of the company was pleased to hear of the success but wanted some assessment of the financial impact of the improvements. To make this assessment, the following financial data were collected for the two years.

	Year 1		Year 2
Sales	$	10,000,000	$	10,000,000
Scrap		400,000		300,000
Rework		600,000		400,000
Product inspection		100,000		125,000
Product warranty		800,000		600,000
Quality training		40,000		80,000
Materials inspection		60,000		40,000

a.	Classify the costs as prevention, appraisal, and internal and external failure.


Scrap
Rework
Product inspection
Product warranty
Quality training
Materials inspection

b-1	Compute total quality cost as a percentage of sales for each of the two years. (Round your answers to 2 decimal places. Omit the "%" sign in your response.)

	Percent of sales
Year 1	%
Year 2	%

b-2	By how much has profit increased because of quality improvements between Year 1 and Year 2? (Omit the "$" sign in your response.)

Profit increase

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9797793

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