In 2006, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program.

At the end of 2007, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality costs for 2006 and 2007 are as follows:

Tru-Delite’s management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of 2012, Tru-Delite’s sales are projected to grow to $750,000. The projected relative distribution of quality costs at the end of 2012 is as follows:

Required:
1. Profits increased by what amount due to quality improvements made in 2007?
2. Prepare a long-range performance report that compares the quality costs incurred at the end of 2007 with the quality cost structure expected at the end of 2012.
3. Are the targeted costs in the year 2012 all value-added costs? How would you interpret the variances if the targeted costs are value-added costs?
4. What would be the profit increase in 2012 if the 2.5 percent performance standard is met in that year?

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2006 2007 Sales Scrap $600,000 $600,000 15,000 15,000 Rework 20,000 10,000 Training program 5,000 6,000 Consumer complaints 10,000 5,000 Lost sales, incorrect labeling 8,000 Test labor 12,000 8,000 Inspection labor 25,000 24,000 Supplier evaluation 15,000 13,000