Iona Company, a large printing company, is in its fourth year of a 5-year quality improve¬

ment program. The program began in 1997 with an internal study that revealed the quality costs being incurred. In that year, a 5-year plan was developed to lower quality costs to 10%

of sales by the end of 2001. 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 2001 budget for quality costs is also provided.

All prevention costs are fixed; all other quality costs are variable.
During 2001, the company had $12 million in sales. Actual quality costs for 2000 and 2001 are as follows:

Required:
1. Prepare an interim quality cost performance report for 2001 that compares actual qual¬
ity costs with budgeted quality costs. Comment on the firm's ability to achieve its qual¬
ity goals for the year.
2. Prepare a one-period quality performance report for 2001 that compares the actual qual¬
ity costs of 2000 with the actual costs of 2001. 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 1997 through 2001. 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 5-year plan to reduce quality costs to 2.5% of sales. Prepare a long-range quality cost performance report assuming sales of $15 million at the end of 5 years. Assume that the final planned relative distribution of quality costs is as follows: proofreading, 50%; other inspection, 13%; quality training, 30%; and quality reporting, 7%.

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Sales Revenues Quality Costs 1997 $10,000,000 $2,000,000 1998 10,000,000 1,800,000 1999. 11,000,000 1,815,000 2000 12,000,000 1,680,000 2001* 12,000,000 1,320,000 "Budgeted figures