Gagnon Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program.

Year	Sales Revenues	Quality Costs as a Percent of Revenues
1	$40,000,000	40%
2	44,500,000	37
3	44,500,000	33
4	47,100,000	29

Required:

1. Assume that Gagnon produces one type of product, which is sold on a bid basis. In Years 1 and 2, the average bid was $350.00. In Year 1, total variable costs were $218.75 per unit. In Year 3, competition forced the bid to drop to $332.50. Round your final answers to the nearest dollar.

a. Compute the total contribution margin in Year 3 assuming the same quality costs as in Year 1.

b. Now, compute the total contribution margin in Year 3 using the actual quality costs for Year 3.

c. What is the increase in profitability resulting from the quality improvements made from Year 1 to Year 3?