15-5 Quality Cost Improvement and Profitability, Quality Cost Report LO1, LO2, LO3 During 2007 and 2008, Norton Company reported sales of $18,000,000 per year. Norton listed the following quality costs for the past two years. Assume that all changes in the quality costs are due to a quality-improvement program. 2007 2008 Field trials $ 450,000 $ 900,000 Recalls 600,000 300,000 Reinspection 300,000 150,000 Packaging inspection 180,000 120,000 Quality training 120,000 300,000 Process acceptance 150,000 Retesting 435,000 105,000 Lost sales (estimated) 900,000 600,000 Product inspection 150,000 90,000 Complaint adjustment 465,000 285,000 Total $3,600,000 $3,000,000 Required 1. Prepare a quality cost report for each year (2007 and 2008). 2. How much were the additional resources invested in prevention and appraisal activities (control costs) from one year to the next? What return did this invest- ment generate? (What reduction in failure costs was achieved?) 3. The management of Norton believes that it is possible to reduce quality costs to 2.5 percent of sales. Assuming sales continue at the $18,000,000 level, calculate the additional profit potential facing Norton. Is the expectation of improving quality and reducing quality costs to 2.5 percent of sales realistic? Explain