Quality Improvement and Profitability Objective Ming Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program. Quality Costs as a Year Sales Revenues Percent of Revenues 1 $16,960,000 25% 2 18,560,000 22 3 22,320,000 18 4 27,120,000 14 Required: 1. Compute the quality costs for all four years. Year 1 Quality Cost Year 2 Year 3 Year 4 By how much did net income increase from Year 1 to Year 2 because of quality improvements? By how much did net income increase from Year 2 to Year 3 because of quality improvements? By how much did net income increase from Year 3 to Year 4 because of quality improvements? 2. The management of Ming Company believes it is possible to reduce quality costs to 2.5 percent of sales. Assuming sales will continue at the Year 4 level, calculate the additional profit potential facing Ming.