In 2016, Exceptional Foods instituted a quality improvement program. At the end of 2017, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and actual quality costs for 2016 and 2017 are as follows:
Exceptional's management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of Year 2017, Exceptional's sales are projected to have grown to $1,500,000. The relative distribution of quality costs at the end of Year 2017 is as follows:
Required:
a. Prepare a long-range performance report that compares the quality costs incurred at the end of 2017 with the quality-cost structure expected at the end of 2020.
b. Are the targeted costs in Year 2017 all value-added costs?
c. What would be the increase in profits in 2017 if the 2.5 percent performance standard is met in that year?

Question

In 2016, Exceptional Foods instituted a quality improvement program. At the end of 2017, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and actual quality costs for 2016 and 2017 are as follows:
  Exceptional's management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of Year 2017, Exceptional's sales are projected to have grown to $1,500,000. The relative distribution of quality costs at the end of Year 2017 is as follows:
  Required: 
a. Prepare a long-range performance report that compares the quality costs incurred at the end of 2017 with the quality-cost structure expected at the end of 2020.
b. Are the targeted costs in Year 2017 all value-added costs?
c. What would be the increase in profits in 2017 if the 2.5 percent performance standard is met in that year?

Quizplus · Accepted Answer

The Answer of In 2016, Exceptional Foods instituted a quality improvement program. At the end of 2017, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and actual quality costs for 2016 and 2017 are as follows:
  Exceptional's management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of Year 2017, Exceptional's sales are projected to have grown to $1,500,000. The relative distribution of quality costs at the end of Year 2017 is as follows:
  Required: 
a. Prepare a long-range performance report that compares the quality costs incurred at the end of 2017 with the quality-cost structure expected at the end of 2020.
b. Are the targeted costs in Year 2017 all value-added costs?
c. What would be the increase in profits in 2017 if the 2.5 percent performance standard is met in that year?

In 2016, Exceptional Foods Instituted a Quality Improvement Program