Quality improvement programs and cost savings

Gurland Valves Company manufactures brass valves that meet precise specification standards. All

finished valves are inspected before being packaged and shipped to customers. Rejected valves

are returned to the initial production stage to be melted and recast. Such rework requires no new

materials in casting but requires new materials in finishing.

The following unit cost data for direct materials, direct labor, and time$-$driven activity$-$based

costing $(ABC)$ are available:

As a result of a quality improvement program, the reject rate has decreased from $6\mathrm{.}4\%$ to $5\mathrm{.}1\%,$

and the number of rejects has decreased by $(6\mathrm{.}4\%-5\mathrm{.}1\%)(10,000)$ units. Improvements in reject

rates have also led to a decrease in work$-$in$-$process inventory from $$386,000$ to $$270,000.$

Inventory carrying costs are estimated to be $15\mathrm{.}0\%$ per year.

a$)$ What is the decrease in the number of rejected units attributable to the new quality improvement

program assuming a production rate of $10,000$ units?

Round to the nearest whole unit.

b$)$ Determine the total savings as a result of the quality improvement, assuming that capacity

costs, as indicated by the time$-$driven ABC support costs, can be reduced if not needed.

Round amounts to the nearest whole dollar.