In 2013,Shelby Foods Instituted a Quality Improvement Program Shelby's Management Believes That Quality Costs Can Be Reduced to of 2014,the

question 26

Essay

In 2013,Shelby Foods instituted a quality improvement program.At the end of 2014,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 2013 and 2014 are as follows:
$\begin{array}{lrr}&2013&2014\\\text { Sales } & \$ 1,000,000 & \$ 1,500,000 \\\text { Scrap } & 30,000 & 37,500 \\\text { Rework } & 40,000 & 25,000 \\\text { Training program } & 10,000 & 12,000 \\\text { Consumer complaints } & 20,000 & 12,500 \\\text { Lost sales, incorrect labelling } & 16,000 & - \\\text { Test labour } & 24,000 & 20,000 \\\text { Inspection labour } & 50,000 & 60,000 \\\text { Supplier evaluation } & 30,000 & 26,000\end{array}$ Shelby's management believes that quality costs can be reduced to 2.5 percent of sales within the next five years.At the end of Year 2014,Shelby's sales are projected to have grown to $1,500,000.The relative distribution of quality costs at the end of Year 2014 is as follows:
$$\begin{array} { l l } \text { Scrap } & 15 \% \\\text { Training } & 20 \% \\\text { Supplier evaluation } & 25 \% \\\text { Test labour } & 25 \% \\\text { Inspection } & 15 \% \\\text { Total quality costs } & 100 \%\end{array}$$
a.Prepare a long-range performance report that compares the quality costs incurred at the end of 2014 with the quality-cost structure expected at the end of 2019.
b.Are the targeted costs in Year 2014 all value-added costs?
c.What would be the increase in profits in 2014 if the 2.5 percent performance standard is met in that year?

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