In 2006, Shelby Foods Instituted a Quality Improvement Program Shelby's Management Believes That Quality Costs Can Be Reduced to the End

In 2006, Shelby Foods instituted a quality improvement program. At the end of 2007, the management of the company requested a report to show the amount saved by the measures taken during the year. The actual sales and actual quality costs for 2006 and 2007 are as follows: $$\begin{array} { l r r } &2006&2007\\\text { Sales } & £ 1,000,000 & £ 1,200,000 \\\text { Scrap } & 30,000 & 30,000 \\\text { Rework } & 40,000 & 20,000 \\\text { Training program } & 10,000 & 12,000 \\\text { Consumer complaints } & 20,000 & 10,000 \\\text { Lost sales, incorrect labeling } & 16,000 & - \\\text { Test labour } & 24,000 & 16,000 \\\text { Inspection labour } & 50,000 & 48,000 \\\text { Supplier evaluation } & 30,000 & 26,000\end{array}$$ Shelby's management believes that quality costs can be reduced to 2.5 per cent of sales within the next five years. At the end of Year 2011, Shelby's sales are projected to have grown to £1,500,000. The relative distribution of quality costs at the end of Year 2011 is as follows: $\begin{array}{lr}\text { Scrap } & 15 \% \\\text { Training } & 20 \% \\\text { Supplier evaluation } & 25 \% \\\text { Test labour } & 25 \% \\\text { Inspection } & 15 \% \\\text { Total quality costs } & \underline{100 \%}\end{array}$
a.Prepare a long-range performance report that compares the quality costs incurred at the end of 2006 with the quality-cost structure expected at the end of 2011.
b.Are the targeted costs in Year 2011 all value-added costs?
c.What would be the increase in profits in 2011 if the 2.5 per cent performance standard is met in that year?