Chapter 14, Problem 16E

In 20x4, Tru-Delite Frozen Desserts, Inc., instituted a quality improvement program. At the end of 20x5, the management of the corporation requested a report to show the amount saved by the measures taken during the year. The actual sales and quality costs for 20x4 and 20x5 are as follows:

Tru-Delite’s management believes that quality costs can be reduced to 2.5 percent of sales within the next five years. At the end of 20x9, Tru-Delite’s sales are projected to grow to $750,000. The projected relative distribution of quality costs at the end of 20x9 is as follows:

Required:

1. 1. Profits increased by what amount due to quality improvements made in 20x5?
2. 2. Prepare a long-range performance report that compares the quality costs incurred at the end of 20x5 with the quality cost structure expected at the end of 20x9.
3. 3. Are the targeted costs in the year 20x9 all value-added costs? How would you interpret the variances if the targeted costs are value-added costs?
4. 4. What would be the profit increase in 20x9 if the 2.5 percent performance standard is met in that year?