Exercise 14.16 Trend, Long-Range Performance Report

In 2014, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 2015, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality costs for 2014 and 2015 are as follows:

	2014	2015
Sales	$ 600,000	$ 600,000
Scrap	15,000	15,000
Rework	20,000	10,000
Training program	5,000	6,000
Consumer complaints	10,000	5,000
Lost sales, incorrect labeling	8,000	0
Test labor	12,000	8,000
Inspection labor	25,000	24,000
Supplier evaluation	15,000	13,000

Tru-Delites management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of 2019, Tru-Delites sales are projected to grow to $750,000. The projected relative distribution of quality costs at the end of 2019 is as follows:

Scrap	15	%
Training program	20
Supplier evaluation	25
Test labor	25
Inspection labor	15
Total quality costs	100	%

Required:

1. Profits increased by what amount due to quality improvements made in 2015? $

2. Prepare a long-range performance report that compares the quality costs incurred at the end of 2015 with the quality cost structure expected at the end of 2019. If an amount is zero, enter "0". Round percentages to one decimal place, when rounding is required. For example, 5.8% would be entered as "5.8". If the budget variance amount is unfavorable enter "U" in the last column of the table. Enter "F" if it is favorable, and enter "NA" if there is no budget variance. Round your answers to the nearest dollar, with two exceptions: round test labor and scrap long-range target costs down to the nearest dollar (for example, $905.90 rounds down to $905).

	actual costs, 2015	long-range target costs	budget variance
Prevention costs:
Training program	$	$	$
supplier evaluation
Total prevention costs	$	$	$
appraisal costs:
test labor	$	$	$
inspection labor
total appraisal costs	$	$	$
internal failure costs:
scrap	$	$	$
rework
total internal failure costs:	$	$	$
external failure costs:
consumer complaints	$		$
lost sales
total external failure	$		$
total quality costs	$	$	$
percent of sales

3. What would be the profit increase in 2019 if the 2.5 percent performance standard is met in that year? The profit increase by $