Answered: Assuming sales will continue at the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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11. Pavon Company reported the following sales and quality costs for the past four years. Assume that all quality costs are variable and that all changes in the quality cost ratios are due to a quality improvement program. The management of Pavon Company believes it is possible to reduce quality costs to 2.5 percent of sales. Assuming sales will continue at the Year 4 level, calculate the additional profit for year 5.

Quality Costs as a
Percentage of Revenues
Year
Sales Revenues
1
$10,000,000
11,000,000
11,000,000
12,000,000
21%
2
18
3
14
4
10

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