The Following Information Pertains to Rudy Company for 2014 Calculate by How Much Profits Would Increase If Quality Costs

question 68

Essay

The following information pertains to Rudy Company for 2014:
$\begin{array}{lr}\text { Sales } & \$ 10,000,000 \\\text { Internal failure costs } & 300,000 \\\text { External failure costs } & 200,000 \\\text { Appraisal costs } & 125,000 \\\text { Prevention costs } & 50,000 \\\text { Cost of goods sold } & 5,000,000\end{array}$
Calculate by how much profits would increase if quality costs were reduced to 2.5 percent of sales.

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Definitions:

Fixed Manufacturing Overhead

Costs that do not change with the level of manufacturing output, including salaries of managers and depreciation of factory equipment.

Direct Labor-Hours

The total hours of labor directly involved in producing goods or providing services.

Direct Labor Rate

The cost per hour for labor directly involved in the production of goods or services.

Production Budget

A budget outlining the number of units that must be produced within a period to meet both sales and inventory demands.