Gurland Valves Company manufactures brass valves that meet precise specification standards. All finished valves are inspected before being packaged and shipped to customers. Rejected valves are returned to the initial production stage to be melted and recast. Such rework requires no new materials in casting but requires new materials in finishing. The following unit cost data for directmaterials, directlabor, andtime-driven activity-based costing(ABC) support areavailable:

As a result of a quality improvementprogram, the reject rate has decreased from 6% to 4.8 %, and the number of rejects has decreased by (6 % - 4.8 %) x (12,000) units. Improvements in reject rates have also led to a decrease inwork-in-process inventory from $384,000 to $270,000. Inventory carrying costs are estimated to be 10% per year.

Estimate the annual cost savings as a result of the qualityimprovement, assuming that capacity costs as indicated by thetime-driven ABC support costs can be reduced if not needed.