At the beginning of the year, Mike Gioulis initiated a quality improvement program. The program was successful in reducing scrap and rework costs. To help assess the impact of the quality improvement program, the following data were collected for the current and preceding years: $\begin{array}{lrr}&\text { Freceding Year }&\text { Current Year }\
\text { Sales } & \$ 2,400,000 & \$ 2,000,000 \
\text { Scrap } & 40,000 & 30,000 \
\text { Rework } & 100,000 & 70,000 \
\text { Product inspection } & 12,000 & 18,000 \
\text { Quality training } & 4,000 & 5,000 \
\text { Material inspections } & 8,000 & 13,000
\end{array}$ For the current year, internal failure costs are what percentage of sales?
A)9.30%
B)5.00%
C)2.50%
D)7.50%

Question

Quizplus · Accepted Answer

Internal failure costs are costs associated with defects found before the delivery of a product to the customer, which in this case include scrap and rework costs. For the current year, scrap costs are $30,000 and rework costs are $70,000, totaling $100,000. The sales for the current year are $2,000,000. Therefore, the internal failure costs as a percentage of sales are $(100,000 / 2,000,000) * 100 = 5\%$.

At the Beginning of the Year, Mike Gioulis Initiated a Quality