In 2004, Shelby Foods Instituted a Quality Improvement Program

In 2004, Shelby Foods instituted a quality improvement program. At the end of 2005, the management of the company requested a report to show the amount saved by the measures taken during the year. The actual sales and actual quality costs for 2004 and 2005 are as follows:
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 2009, Shelby's sales are projected to have grown to £1,500,000. The relative distribution of quality costs at the end of Year 2009 is as follows:
Required:

a.
Prepare a long-range performance report that compares the quality costs incurred at the end of 2004 with the quality-cost structure expected at the end of 2009.
b.
Are the targeted costs in Year 2009 all value-added costs?
c.
What would be the increase in profits in 2009 if the 2.5 percent performance standard is met in that year?

Correct Answer:

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