Destin Company produces water control valves, made of brass,

which it sells primarily to builders for use in commercial real

estate construction. These valves must meet rigid specifications

$($i$.$e$.,$ the quality tolerance is small$).$ Valves that, upon

inspection, get rejected are returned to the Casting Department;

that is$,$ they are returned to stage $1$ of the four$-$stage

manufacturing process. Rejected items are melted and then recast.

As such, no new materials in Casting are required to rework these

items. However, new materials must be added in the Finishing

Department for all reworked valves. As the cost accountant for the

company, you have prepared the following cost data regarding the

production of a typical valve:$$The company, spurred by intense price pressures from foreign

manufacturers, recently initiated a number of quality programs. As

a result, the rejection rate for valves has decreased from $7\mathrm{.}1\%$ to

$5\mathrm{.}6\%$ of annual output $($equal in total to $14,000$ units$).$ The

reduction in reject rates has enabled the company to reduce its

inventory holdings from $$550,000$ to $$325,000.$ Destin estimates that

the annual financing cost associated with inventory holdings is

$12\%.$Required:$1.$ What are the estimated manufacturing cost savings per year

associated with the reduction in rework costs?$2.$ What is the annual financing cost savings associated with the

reduction in inventory holdings?$3.$ Provide a dollar estimate of the total annual cost savings

associated with the recently enacted quality improvements.