In 2004, Style, SA., instituted a quality improvement program. At the end of 2002, 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:
Required:

a.
Classify each cost as variable or fixed with respect to sales and compute the variable cost ratio. Be careful-costs may change because of quality improvement, not cost behaviour.
b.
How much did profits increase because of quality improvements made in 2005, assuming all reductions in quality costs are attributable to quality improvements?

Question

In 2004, Style, SA., instituted a quality improvement program. At the end of 2002, 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:
Required:
  
a.
Classify each cost as variable or fixed with respect to sales and compute the variable cost ratio. Be careful-costs may change because of quality improvement, not cost behaviour.
b.
How much did profits increase because of quality improvements made in 2005, assuming all reductions in quality costs are attributable to quality improvements?

Quizplus · Accepted Answer

The Answer of In 2004, Style, SA., instituted a quality improvement program. At the end of 2002, 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:
Required:
  
a.
Classify each cost as variable or fixed with respect to sales and compute the variable cost ratio. Be careful-costs may change because of quality improvement, not cost behaviour.
b.
How much did profits increase because of quality improvements made in 2005, assuming all reductions in quality costs are attributable to quality improvements?