Part A Cost of Quality 10 marks At the beginning of the year, Sherwood Company initiated a quality improvement program. The programme was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, Sherwood's managers collected the following data for the current and preceding year: Preceding Year Current Year Sales $20,000,000 $20,000,000 Quality training 40,000 65,000 Scrap 400,000 350,000 Materials inspection 80,000 70,000 Rework 550,000 500,000 Product inspection 100,000 150,000 Product warranty 700,000 600,000 Required:

a. Compute prevention costs, appraisal costs, internal failure costs, and external failure costs as a percentage of sales for the preceding year and the current year. (3 marks)

b. How much has profit changed as a result of these quality improvements? (2 marks)

c. If quality costs can be reduced even further to 2.5 percent of sales, how much additional profit would result? (2 marks)

d. Briefly describe why the manager of Sherwood Company needs quality cost information for continuous improvement. (3 marks)