The following information pertains to Bull Company for the current year:
$\begin{array}{lr}
\text { Sales } & \$ 1,000,000 \
\text { Internal failure costs } & 125,000 \
\text { External failure costs } & 50,000 \
\text { Appraisal costs } & 35,000 \
\text { Prevention costs } & 25,000 \
\text { Cost of goods sold } & 375,000
\end{array}$
-Refer to the figure.If quality costs were reduced to 2.5 percent of sales,by how much would profits increase?
A)$25,000
B)$125,000
C)$180,000
D)$210,000

Question

Quizplus · Accepted Answer

The total current quality costs are the sum of internal failure costs, external failure costs, appraisal costs, and prevention costs, which equals $125,000 + $50,000 + $35,000 + $25,000 = $235,000. If quality costs were reduced to 2.5% of sales, the new quality costs would be 2.5% of $1,000,000 = $25,000. The reduction in quality costs would be $235,000 - $25,000 = $210,000, which would directly increase profits by the same amount.

The Following Information Pertains to Bull Company for the Current