ing produces one type of product, which is sold on a bid basis lisic? Explain. aion of In Years 1 and 2, che average bid was $200. Iln Year 1, total varialde cos were il do $125 per unit. In Year 3, competition forced the bid to the total contribution margin in Year 3 assuming the same drop to $190. Congute quality 1. Now, compute the total contribution margin in Year 3 using the sctul qualiny costs as in Yeas costs for Year 3. What is the increase in profitability resulting from the qualiwy improvements made from Year I to Year 3? Morrison Company had sales of $20,000,000 in 2000, In 2004, sales had incie $25,000,000. A quality-improvemient program was implemented at the beginning of 2000. Overall conformance quality was targeted for improvement. The quality cous for 2000 and 2004 are shown below. Assume any changes in quality costs are attributable to improvements in quality. Achual 2004 2000 $ 75,000 $1,500,000 2,000,000 900,000 600,000 Internal failure costs External failure costs Appraisal costs Prevention costs 50,000 187,500 312,500 $625,000 $5,000,000 Total quality costs Required: L. Compute the quality cost-to-sales ratio for each year. Is this possible? 2. Calculate the relative distribution of costs by category for 2000. What do think of the help.) How do' you think they will be distributed as the company approaches a zero-defects state? ieduction in Exlernel while all other arecs 3. Calculate the relative distribution of costs by category for 2004. What do you think of the level and distribution of quality costs? (A pie chart or bar graph m. be of some help.) Do you think further reductions are possible? The quality manager for Morrison indicated that the external failure costs reported are only the measured costs. He argued that the 2004 external costs w much higher than those reported and that additional investment ought to be made in control costs. Discuss the validity of his viewpoint. 5. Suppose that the manager of Morrison received a bonus equal to 10 percent. the quality cost savings each year. Do you think that gainsharing is a good a bad idea? Discuss the risks of gainsharing. of improvement type you way costs are distributed? (A pie chart or bar graph may be of some vies Company has sales of $8 million and quality costs of $1,600,000. The co- embarking on a major quality-improyement program During the pot the