At the beginning of Year 1, Kare Company initiated a quality improvement program. Consider-able 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.

Instructions
a. Classify the costs as prevention, appraisal, internal failure, and external failure.
b. Compute total quality cost as a percentage of sales for each of the two years. By how much has profit increased because of quality improvements between Year 1 and Year 2?
c. Graph the prevention and appraisal costs versus the internal and external failure costs for Year 1 and Year 2.
d. Several individuals are critical of the cost–benefit quality model. Identify and explain at least two criticisms. Identify measures, other than cost numbers, that companies can use to trackquality.

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