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: $\begin{array}{lrr}&\text { Freceding Year }&\text { Current Year }\
\text { Sales } & \$ 2,400,000 & \$ 2,000,000 \
\text { Scrap } & 40,000 & 30,000 \
\text { Rework } & 100,000 & 70,000 \
\text { Product inspection } & 12,000 & 18,000 \
\text { Quality training } & 4,000 & 5,000 \
\text { Material inspections } & 8,000 & 13,000
\end{array}$ As a result of quality improvements, profits have increased by
A)$400,000.
B)$58,000.
C)$186,000.
D)$244,000.

Question

Quizplus · Accepted Answer

To calculate the increase in profits due to quality improvements, subtract the total costs of the preceding year from the total costs of the current year. The costs include scrap, rework, product inspection, quality training, and material inspections. The sales figures are not directly relevant to the calculation of cost savings. For the preceding year, the total costs are: $40,000 (scrap) + $100,000 (rework) + $12,000 (product inspection) + $4,000 (quality training) + $8,000 (material inspections) = $164,000.For the current year, the total costs are: $30,000 (scrap) + $70,000 (rework) + $18,000 (product inspection) + $5,000 (quality training) + $13,000 (material inspections) = $136,000.The difference in costs, and thus the increase in profits due to quality improvements, is $164,000 - $136,000 = $28,000, which does not match any of the provided options directly. Given the options and the calculation error acknowledged, the correct approach to finding the increase in profits involves considering the reduction in costs due to reduced scrap and rework, and the increase in costs for product inspection, quality training, and material inspections. The correct calculation should consider these factors accurately. Given the mistake in the initial calculation, let's correct the approach:Reduction in costs due to scrap and rework: $(40,000 + 100,000) - (30,000 + 70,000) = $140,000 - $100,000 = $40,000.Increase in costs for product inspection, quality training, and material inspections: $(18,000 + 5,000 + 13,000) - (12,000 + 4,000 + 8,000) = $36,000 - $24,000 = $12,000.Net increase in profits = Reduction in costs - Increase in other costs = $40,000 - $12,000 = $28,000.Given the error in the initial response and the options provided, it appears there was a misunderstanding in the calculation or the interpretation of the question. The correct answer should reflect the net impact of the quality improvement program on profits, considering both the reductions in scrap and rework costs and the increases in inspection and training costs. Without an option that matches the recalculated figure, and acknowledging the mistake, the focus should be on understanding the correct method to assess the impact of quality improvements on profits.

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