Paper Products Division produces paper diapers, napkins, and paper towels. The divi- sional manager has decided that quality costs can be minimized by distributing quality costs evenly among the four quality categories and reducing them to no more than 5 percent of sales. He has just received the following quality cost report: Paper Products Division Quality Cost Report For the Year Ended December 31, 2008 Diapers Napkins Towels Total Prevention: Quality training $ 3,000 $ 2,500 $ 2,000 $ 7,500 Quality engineering 3,500 1,000 2,500 7,000 Quality audits 500 1,000 1,500 Quality reporting 2,500 2,000 1,000 5,500 Total $ 9,000 $ 6,000 $ 6,500 $ 21,500 (Continued) Diapers Napkins Towels Total Appraisal: Inspection, materials $ 2,000 $ 3,000 $ 3,000 $ 8,000 Process acceptance 4,000 2,800 1,200 8,000 Product acceptance 2,000 1.200 2.300 5,500 Total $8,000 $ 7.000 $ 6,500 $ 21.500 Internal failure Scrap $10,000 $ 3,000 $ 2,500 $ 15,500 Disposal costs 7,000 2,000 1,500 10,500 Downtime 1,000 1,500 2,500 5,000 Total $18,000 $ 6,500 $6,500 $31.000 External failure: Allowances $10,000 $ 3,000 $ 2,750 $ 15,750 Customer complaints 4,000 1,500 3,750 9,250 Product liability 1.000 1.000 Total $15,000 $ 4,500 $6,500 $ 26,000 Total quality costs $50,000 $24,000 $26.000 $100,000 Assume that all prevention costs are fixed and that the remaining quality costs are variable. Required 1. Assume that the sales revenue for the year totaled $2 million, with sales for each product as follows: diapers, 51 million; napkins, $600,000; and towels, $400,000. Evaluate the distribution of costs for the division as a whole and for each prod. uct line. What recommendations do you have for the divisional manager? 2. Now, assume a different scenario, where total sales of $1 million have this break down: diapers, $500,000; napkins, $300,000, and towels $200,000. Evaluate the distribution of costs for the division as a whole and for each product line in this case. Do you think it is possible to reduce the quality costs to 5 percent of sales for each product line and for the division as a whole and simultaneously achieve an equal distribution of the quality costs? What recommendations do you have? 3. Assume total sales of $1 million with this breakdown: diapers, 5500,000; nap kins. $180,000, and towels. $320,000. Evaluate the distribution of quality costs What recommendations for the divisional manager do you have? 4. Discuss the value of having quality costs reported by segment