At the Beginning of the Year, Randy Company Initiated a Quality

question 126

Essay

At the beginning of the year, Randy Company 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:

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 2.5 percent of sales, how much additional profit would result?

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Definitions:

Interest

The cost of borrowing money or the payment received for lending money, usually expressed as an annual percentage of the principal amount.

Simple Interest

A way of calculating interest where the interest charge is based on the original principal only and does not compound.

Repaid

The action of paying back borrowed money to a lender, either in installments or as a lump sum.

Loans

Sums of money borrowed that are expected to be paid back with interest, often under agreed-upon terms between lenders and borrowers.