rate to 1%. Assume all units produced are sold and there are no ending inventories.
249) What is the net change in the budget of prevention costs if the procedures are automated in 202X? Will
management agree with the changes?
A) $90,000 increase, no
B) $90,000 decrease, yes
C) $190,000 increase, no
D) $100,000 decrease, yes
E) $100,000 increase, yes
Answer: E
250) How much will appraisal costs change assuming that the new prevention methods reduce material failures by
30% in the appraisal phase?
A) $229,000 decrease
B) $50,000 decrease
C) $84,000 decrease
D) $150,000 decrease
E) $50,000 increase
Answer: B
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251) How much will internal failure costs change with the new procedures?
A) $ 84,000 increase
B) $ 84,000 decrease
C) $126,000 decrease
D) $168,000 decrease
E) $50,000 decrease
Answer: B
252) How much do external failure costs change if all the changes are as the new prevention procedures anticipated?
Assume all units produced are sold and there are no ending inventories.
A) $151,200 decrease
B) $158,900 decrease
C) $100,800 decrease
D) $126,000 decrease
E) $156,400 decrease
Answer: A
253) Try-Us- First Motors manufactures and sells off- road vehicles. The September sales were $6,000,000. Monthly
design costs are $112,000 and rework is running at $75,000 per month. Its painting department is fully
automated and requires substantial inspection to keep the machines operating properly. An improperly painted
vehicle is very expensive to correct, and inspection hours for the 8,000 vehicles painted in September totaled
2,000 hours by 14 employees, who earn an average of $28 an hour. Ten litres of paint were used on average for each
vehicle. The standard amount of paint per vehicle is nine litres. .
What are appraisal costs as a percentage of sales?
A) 2.20% B) 2.80% C) 0.93% D) 1.87% E) 1.25%
Answer: C
SHORT ANSWER. Write the word or phrase that best completes each statement or answers the question.
254) The CEO of Oakville Machine Parts (OMP) is concerned with the quality of its products and the amount of resources
currently spent on customer returns. The CEO would like to analyze the costs incurred in conjunction with the quality of
the product.
The following information was collected from various departments within the company:
Warranty returns $240,000
Training personnel 20,000
Litigation on product liability claims 350,000
Inspecting 10% of final products 10,000
Rework 20,000
Production loss due to machine breakdowns 90,000
Inspection of raw materials 10,000
Required:
A. Complete the Cost of Quality Report.
B. Do any additional subjective costs appear to be missing from the report?
C. What can be learned from the report?
Costs
Incurred
Total Costs
of Quality
Percentage of
Total Costs
of Quality
Prevention Costs:
Personnel training 28
Personnel training
Total prevention costs
Appraisal Costs:
Inspecting raw materials
Inspecting 10% of final
products
Total appraisal costs
Internal Failure Costs:
Rework
Production loss due to
machine breakdown
Total internal failure costs
External Failure Costs:
Litigation costs from product
liability claims
Warranty return costs
Total external failure costs
Total costs of quality
Answer: Requirement A:
Costs
Incurred
Total Costs
of Quality
Percentage of
Total Costs
of Quality
Prevention Costs:
Personnel training $20,000
Total prevention costs $20,000 3%
Appraisal Costs:
Inspecting raw materials $10,000
Inspecting 10% of final
products
$10,000
Total appraisal costs $20,000 3%
Internal Failure Costs:
Rework $20,000
Production loss due to
machine breakdown
$90,000
Total internal failure costs $110,000 15%
External Failure Costs:
Litigation costs from product
liability claims
$350,000
Warranty return costs $240,000
Total external failure costs $590,000 79%
Total costs of quality $740,000 100%
Requirement B:
Because the company has warranty returns and litigation costs it is possible that it has a reputation for poor
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Answer: quality. This may be resulting in lost sales and hence lost profits.
Requirement C:
The Cost of Quality report shows that little is being spent on prevention and maintenance.
255) The CEO of Prairie Machine Parts (PMP) is concerned with the quality of its products and the amount of resources
currently spent on customer returns. The CEO would like to analyze the costs incurred in conjunction with the quality of
the product.
The following information was collected from various departments within the company: