At the beginning of the year, Company initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data was collected for the current and preceding year.

Preceding year Current year

Sales $4,000,000 $4,000,000

Quality training 6,000 9,000

Product inspections 15,000 12,000

Scrap 80,000 60,000

Rework 15,000 12,000

Product testing 25,000 30,000

Product warranty 150,000 120,000

Required:

a. Compute each category of quality costs as a percentage of sales for each year. Round percentage to the 3 decimals.

Prevention costs

Appraisal costs

Internal failure costs

External failure costs

b. How much has profit increased as a result of quality improvements?

c. If quality costs can be reduced to 2.5% of sales, how much additional profit would result?