Iona Company, a large printing company, is in its fourth year of a five-year quality improvement program. The program began in 2006 with an internal study that revealed the quality costs being incurred. In that year, a five-year plan was developed to lower quality costs to 10 percent of sales by the end of 2010. Sales and quality costs for each year are as follows:

Quality costs by category are expressed as a percentage of sales as follows:

The detail of the 2010 budget for quality costs is also provided.
Prevention costs:
Quality planning ............. $ 150,000
Quality training .............. 20,000
Quality improvement (special project) .... 80,000
Quality reporting ............. 10,000
Appraisal costs:
Proofreading ............... 500,000
Other inspection .............. 50,000
Failure costs:
Correction of typos ........... 150,000
Rework (because of customer complaints) ... 75,000
Plate revisions ............. 55,000
Press downtime ............. 100,000
Waste (because of poor work) ....... 130,000
Total quality costs ......... $1,320,000

All prevention costs are fixed; all other quality costs are variable.
During 2010, the company had $12 million in sales. Actual quality costs for 2009 and 2010 are as follows:

Required:
1. Prepare an interim quality cost performance report for 2010 that compares actual quality costs with budgeted quality costs. Comment on the firm's ability to achieve its quality goals for the year.
2. Prepare a single-period quality performance report for 2010 that compares the actual quality costs of 2009 with the actual costs of 2010. How much did profits change because of improved quality?
3. Prepare a graph that shows the trend in total quality costs as a percentage of sales since the inception of the quality improvement program.
4. Prepare a graph that shows the trend for all four quality cost categories for 2006 through 2010. How does this graph help management know that the reduction in total quality costs is attributable to quality improvements?
5. Assume that the company is preparing a second five-year plan to reduce quality costs to 2.5 percent of sales. Prepare a long-range quality cost performance report assuming sales of $15 million at the end of five years. Assume that the final planned relative distribution of quality costs is as follows: proofreading, 50 percent; other inspection, 13 percent; quality training, 30 percent; and quality reporting, 7percent.

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Sales Revenues Quality Costs 2006 2007 2008 2009 2010* $10,000,000 10,000,000 11,000,000 12,000,000 12,000,000 S2,000,000 1,800,000 1,815,000 1,680,000 1,320,000 Prevention Appraisal Internal Failure Eternal Failure 2006 2007 2008 2009 2010 1 .0% 2.5 3.0 3.5 3.0% 4.0 4.0 3.5 3.5 70% 6.0 5.0 4.5 9.0% 6.0 5.0 2009 2010 Quality planning Quality training Special project Quality reporting Proofreading Other inspection Correction of typos $140,000 $150,000 20,000 100,000 12,000 520,000 60,000 165,000 76,000 58,000 123,000 102,000 191,000 136,000 8 20,000 120,000 12,000 580,000 80,000 200,000 131,000 83,000 Rework Plate revisions Press downtime Waste