initiated a full-scale, quality improvement program. At the In 2004, Danvers Company initiated a full-scale, quality improve noted with some satisfaction that the defects per unit of end of the year, the president noted with some satisfaction that the product had dropped significantly compared to the prior suppliers had improved and defective materials had declined. The new quality training program was also well accepted by employees. Of most in the president, however, was the impact of the quality improvements on profitability To help assess the dollar impact of the quality improvements, the actual sales and the actual quality costs for 2003 and 2004 are given below by quality category: Year ge 2004 2003 $20,000,000 $25,000,000 800,000 100,000 750,000 70,000 10,000 5,000 5,000 100,000 50,000 250,000 Sales Appraisal costs: Product inspection Material inspection Prevention costs: Quality training Quality reporting Quality-improvement projects Internal failure costs: Scrap Rework Yield losses Retesting External failure costs: Returned materials Allowances 700.000 900,000 400,000 500,000 600,000 800.000 250,000 400,000 400,000 300,000 1,000,000 400.000 350,000 1,100,000 Warranty All prevention costs are fixed (by discretion). Assume all other quality costs are unit level variable. Required: 1. Compute the relative distribution of quality costs for each year. Do you believe that the company is moving in the right direction in terms of the balance among the quality cost categories. Explain. 2. Prepare a one-year trend performance report for 2004 (compare the actual costs of 2004 with those of 2003, adjusted for differences in sales volume). How much have profits increased because of the quality improvements made by Danvers Company 3. Estimate the additional improvement in profits if Danvers Company ultimately reduces its quality costs to 2.5 percent of sales revenues (assume sales of $25 million)