Question
At the beginning of the year, Nevermore, Inc., initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help
At the beginning of the year, Nevermore, Inc., 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 were collected for the current and preceding years:
| Preceding Year | Current Year | |
| Sales | $2,000,000 | $2,000,000 |
| Quality circles (Prevention) | 9,000 | 10,000 |
| Packaging inspections (Appraisal) | 20,000 | 32,000 |
| Scrap (Internal failure) | 100,000 | 90,000 |
| Lost sales (External failure) | 180,000 | 160,000 |
| Downtime (Internal failure) | 125,000 | 120,000 |
| Product inspection (Appraisal) | 40,000 | 90,000 |
Required:
| a. | Compute each category of quality costs as a percentage of sales for each year. |
| Prevention costs | |
| Appraisal costs | |
| Internal failure costs | |
| External failure costs | |
| b. | How much has profit increased or decreased as a result of quality improvements? |
| c. | If quality costs can be reduced to 2.0 percent of sales, how much additional profit (in relation to the "Current Year") would result? |
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Place Of Internal Audit And Management Control In Performance The Case Of The Bank
Authors: Hind Ben Khayat
1st Edition
6205968371, 978-6205968376
