Trends in Quality Costs. White and White, Inc. has just finished a study of its quality costs. Based on recent accounting reports, quality costs for the 1997 fiscal year are as follows:

These costs are 11 percent of sales. The firm plans to implement a program called "TQM Victory" to reduce quality costs in total and as a percentage of sales. Sales are expected to expand by 10 percent per year. By 1999, it expects to spend \(\$ 300,000\) on prevention costs by substantially expanding employee training. Improved inspection efforts will add \(\$ 100,000\) to appraisal costs. By 1999 , each failure cost category will be reduced by 10 percent.
By 2001, continued efforts will hold prevention and appraisal costs constant; but external failure costs are expected to drop to 1 percent of sales. Internal failure costs will drop 30 percent from 1999 levels.
By 2003 (the target year of the TQM effort), prevention costs should fall to \(\$ 200,000\); appraisal costs could be cut in half from 1999 levels. Internal failure costs should drop another 40 percent from their 2001 levels. And, external failure costs are targeted to be no higher than 0.3 percent of sales.
\section*{Required:}
1. What are total quality costs targeted to be in year 2003?
2. Can the firm get to a 4 percent of sales target by 2003? Explain.
3. Comment on at least three key assumptions you see from the data provided.

Transcribed Image Text:

Prevention costs Appraisal costs Internal failure costs External failure costs (including lost sales) $100,000 300,000 400,000 300,000