Harrison, Inc., had the following quality costs for the years ended December 31, 2010 and 2011:

At the end of 2010, management decided to increase its investment in control costs by 50 percent for each category’s items with the expectation that failure costs would decrease by 20 percent for each item of the failure categories. Sales were $4,000,000 for both 2010 and 2011.
Required:
1. Calculate the budgeted costs for 2011, and prepare an interim quality performance report.
2. Comment on the significance of the report. How much progress has Harrison made?
3. What if sales were $4,000,000 for 2010 and $5,000,000 for 2011? What adjustment to budgeted rework costs would be made? Budgeted quality audits? Assuming the actual costs for 2011 do not change, what does this adjustment say about Harrison’s performance?LO1

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2010 2011 Prevention costs: Quality audits Vendor certification $ 20,000 $ 30,000 40,000 60,000 Appraisal costs: Product acceptance $ 30,000 $ 45,000 Process acceptance 25,000 36,500 Internal failure costs: Retesting $ 34,000 Rework External failure costs: Recalls Warranty 72,000 $ 30,000 60,000 $ 50,000 110,000 $ 40,000 100,000