At the beginning of the year, Grant Company 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:
$\begin{array}{lrr}&\text { Preceding Year }&\text { Current Year }\
\text { Sales } & £ 3,000,000 & £ 3,000,000 \
\text { Quality training } & 3,000 & 4,500 \
\text { Material inspections } & 7,500 & 12,000 \
\text { Scrap } & 60,000 & 45,000 \
\text { Rework } & 120,000 & 75,000 \
\text { Product inspection } & 15,000 & 30,000 \
\text { Product warranty } & 105,000 & 82,500
\end{array}$
-Refer to Figure 21-8. As a result of quality improvements, profits have increased by
A)£97,500.
B)£61,500.
C)£22,500.
D)£15,000.

Question

Quizplus · Accepted Answer

To calculate the increase in profits due to quality improvements, we need to consider both the increased costs and the savings. Increased costs include quality training (£1,500 increase), material inspections (£4,500 increase), and product inspection (£15,000 increase), totaling £21,000. Savings include reductions in scrap (£15,000), rework (£45,000), and product warranty (£22,500), totaling £82,500. The net increase in profits is the savings minus the increased costs: £82,500 - £21,000 = £61,500.

At the Beginning of the Year, Grant Company Initiated a Quality