In 2016, Creative Design, Inc., 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:
Required:
a. Classify each cost as variable or fixed with respect to sales and compute the variable cost ratio for 2016. Be careful-costs may change because of quality improvement, not cost behavior.
b. How much did profits increase because of quality improvements made in 2017, assuming all reductions in quality costs are attributable to quality improvements?
c. Prepare an interim trend quality costs report for Creative Design, Inc.

Question

In 2016, Creative Design, Inc., 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:
   Required: 
a. Classify each cost as variable or fixed with respect to sales and compute the variable cost ratio for 2016. Be careful-costs may change because of quality improvement, not cost behavior.
b. How much did profits increase because of quality improvements made in 2017, assuming all reductions in quality costs are attributable to quality improvements?
c. Prepare an interim trend quality costs report for Creative Design, Inc.

Quizplus · Accepted Answer

The Answer of In 2016, Creative Design, Inc., 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:
   Required: 
a. Classify each cost as variable or fixed with respect to sales and compute the variable cost ratio for 2016. Be careful-costs may change because of quality improvement, not cost behavior.
b. How much did profits increase because of quality improvements made in 2017, assuming all reductions in quality costs are attributable to quality improvements?
c. Prepare an interim trend quality costs report for Creative Design, Inc.