At the Beginning of the Year, Nevermore, Inc Required:
A

question 9

Essay

At the beginning of the year, Nevermore, Inc., 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:
$\begin{array}{lrr}&\text { Freceding Year}&\text { Current Year }\\\text { Sales } & \$ 2,000,000 & \$ 2,000,000 \\\text { Quality circles } & 9,000 & 10,000 \\\text { Packaging inspections } & 20,000 & 32,000 \\\text { Scrap } & 100,000 & 90,000 \\\text { Lost sales } & 180,000 & 160,000 \\\text { Downtime } & 125,000 & 120,000 \\\text { Product inspection } & 40,000 & 90,000\end{array}$
Required:
a.Compute each category of quality costs as a percentage of sales for each year.Prevention costs
Appraisal costs
Internal failure costs
External failure costs
b.How much has profit increased as a result of quality improvements?
c.If quality costs can be reduced to 2.0 percent of sales, how much additional profit would result?

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Definitions:

Opportunity Cost

The burden of passing over the next top choice in the hierarchy of options when deciding.

Average Cost

Calculated by dividing the total cost of production by the number of goods produced, representing the cost per unit.

Minimum Price

The lowest legally allowed price at which a good or service can be sold, often set to protect producers or promote fair trade.

Scenario 1-3

A hypothetical or real situation used to illustrate a particular case or outcome, typically numbered for organization.