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Managerial Accounting, 16e (Garrison)
Appendix 1A, Cost of Quality
1) ISO 9000 standards were established to make sure that all consumer products incorporate
specific safety features.
2) External failure costs are limited to the costs of repairing defective products that are under
warranty.
3) To minimize its total quality costs, a company should usually try to redistribute its quality
costs more toward prevention and appraisal.
4) The most effective way to minimize quality costs while maintaining high quality is to avoid
having quality problems in the first place. This is the reason for incurring appraisal costs.
5) Quality of conformance refers to the extent to which a product offered by one company is
similar to products offered by other companies.
6) The costs of lost sales arising from poor quality are always included in quality cost reports.
7) A quality cost report is usually compiled by the purchasing department to show the added
costs of purchasing higher quality components.
8) An increase in appraisal costs in a quality improvement program would usually have the
following initial effects on internal and external failure costs:
Internal failure costs
External failure costs
A)
Increase
Increase
B)
Increase
Decrease
C)
Decrease
Increase
D)
Decrease
Decrease
A) Choice A
B) Choice B
C) Choice C
D) Choice D
9) Inspection of products would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
10) An increase in appraisal costs will usually result in an increase in:
A) prevention costs.
B) internal failure costs.
C) external failure costs.
D) opportunity costs.
11) Quality is achieved when a product or service contains all of the features that a customer
would expect, and when that product or service performs in such a way that the customer is
satisfied.
12) The cost of quality training would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
13) The cost of testing incoming materials received from suppliers would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
14) The four categories of quality costs in a quality cost report are:
A) external failure, product liability, prevention, and carrying.
B) external failure, internal failure, prevention, and appraisal.
C) warranty, product liability, prevention, and appraisal.
D) warranty, product liability, training, and appraisal.
15) The cost of labor time required to rework defective units would be classified as a(n):
A) prevention cost.
B) appraisal cost.
C) internal failure cost.
D) external failure cost.
16) In classifying the costs of quality at a company that manufactures sonar equipment, which of
the following is considered an external failure cost?
A) the net cost of scrap and spoilage incurred during production.
B) the cost of repairs and replacements made during the warranty period.
C) the cost of debugging software errors found in the sonar equipment during inspection at the
plant.
D) both the cost of repairs and replacements made during the warranty period and the cost of
debugging software errors found in the sonar equipment during inspection at the plant.
E) none of the above.
17) Which of the following would be classified as an appraisal cost on a quality cost report?
A) Final product testing and inspection.
B) Net cost of spoilage.
C) Repairs and replacements beyond the warranty period.
D) Rework labor and overhead.
18) Which of the following would be classified as a prevention cost on a quality cost report?
A) Technical support provided to suppliers.
B) Net cost of spoilage.
C) Disposal of defective products.
D) Debugging software errors.
19) Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Audits of the effectiveness of the quality system.
B) Systems development.
C) Quality improvement projects.
D) Debugging software errors.
20) Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Quality improvement projects.
B) Supervision of testing and inspection activities.
C) Debugging software errors.
D) Warranty repairs and replacements.
21) Which of the following would be classified as an external failure cost on a quality cost
report?
A) Returns and allowances arising from quality problems.
B) Quality improvement projects.
C) Quality engineering.
D) Net cost of spoilage.
22) Which of the following would be classified as an appraisal cost on a quality cost report?
A) Returns and allowances arising from quality problems.
B) Downtime caused by quality problems.
C) Test and inspection of in-process goods.
D) Cost of field servicing and handling complaints.
23) Which of the following would be classified as an external failure cost on a quality cost
report?
A) Repairs and replacements beyond the warranty period.
B) Technical support provided to suppliers.
C) Quality improvement projects.
D) Rework labor and overhead.
24) Which of the following would be classified as an external failure cost on a quality cost
report?
A) Reentering data because of keying errors.
B) Customer returns arising from quality problems.
C) Test and inspection of in-process goods.
D) Rework labor and overhead.
25) Which of the following would be classified as a prevention cost on a quality cost report?
A) Net cost of spoilage.
B) Supervision of testing and inspection activities.
C) Liability arising from defective products.
D) Technical support provided to suppliers.
26) Which of the following would be classified as a prevention cost on a quality cost report?
A) Cost of field servicing and handling complaints.
B) Warranty repairs and replacements.
C) Systems development.
D) Rework labor and overhead.
27) Which of the following would be classified as an external failure cost on a quality cost
report?
A) Final product testing and inspection.
B) Disposal of defective products.
C) Supervision of testing and inspection activities.
D) Cost of field servicing and handling complaints.
28) In preparing a quality cost report, the cost of employee's time spent in quality circles is part
of:
A) prevention costs.
B) appraisal costs.
C) internal failure costs.
D) external failure costs.
29) Which of the following would be classified as an appraisal cost on a quality cost report?
A) Test and inspection of in-process goods.
B) Technical support provided to suppliers.
C) Debugging software errors.
D) Audits of the effectiveness of the quality system.
30) Which of the following would be classified as a prevention cost on a quality cost report?
A) Debugging software errors.
B) Quality training.
C) Test and inspection of incoming materials.
D) Cost of field servicing and handling complaints.
31) Which of the following would be classified as an appraisal cost on a quality cost report?
A) Quality improvement projects.
B) Supplies used in testing and inspection.
C) Audits of the effectiveness of the quality system.
D) Quality data gathering, analysis, and reporting.
32) Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Final product testing and inspection.
B) Warranty repairs and replacements.
C) Depreciation of test equipment.
D) Debugging software errors.
33) Which of the following would be classified as a prevention cost on a quality cost report?
A) Disposal of defective products.
B) Net cost of spoilage.
C) Depreciation of test equipment.
D) Technical support provided to suppliers.
34) Which of the following would be classified as an external failure cost on a quality cost
report?
A) Depreciation of test equipment.
B) Repairs and replacements beyond the warranty period.
C) Supplies used in testing and inspection.
D) Re-entering data because of keying errors.
35) Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Rework labor and overhead.
B) Cost of field servicing and handling complaints.
C) Technical support provided to suppliers.
D) Lost sales arising from a reputation for poor quality.
36) Which of the following would be classified as an external failure cost on a quality cost
report?
A) Re-entering data because of keying errors.
B) Repairs and replacements beyond the warranty period.
C) Disposal of defective products.
D) Technical support provided to suppliers.
37) Which of the following would be classified as an internal failure cost on a quality cost
report?
A) Rework labor and overhead.
B) Technical support provided to suppliers.
C) Quality improvement projects.
D) Systems development.
38) Which of the following would be classified as an external failure cost on a quality cost
report?
A) Depreciation of test equipment.
B) Test and inspection of in-process goods.
C) Test and inspection of incoming materials.
D) Warranty repairs and replacements.
39) Which of the following would be classified as an appraisal cost on a quality cost report?
A) Debugging software errors.
B) Supplies used in testing and inspection.
C) Re-entering data because of keying errors.
D) Warranty repairs and replacements.
40) Which of the following would be classified as a prevention cost on a quality cost report?
A) Supplies used in testing and inspection.
B) Debugging software errors.
C) Quality improvement projects.
D) Lost sales arising from a reputation for poor quality.
41) Which of the following would be classified as an appraisal cost on a quality cost report?
A) Maintenance of test equipment.
B) Re-entering data because of keying errors.
C) Debugging software errors.
D) Warranty repairs and replacements.
42) Adolphson Corporation has provided the following summary of its quality cost report for the
last two years:
Summary of Quality Cost Report
(in thousands)
This Year
Last Year
% Change
Prevention costs
$
300
$
200
+
50
Appraisal costs
315
210
+
50
Internal failure costs
114
190
-
40
External failure costs
621
1,200
-
48
Total quality costs
$
1,350
$
1,800
-
25
On the basis of this report, which one of the following statements is most likely correct?
A) An increase in prevention and appraisal costs resulted in fewer defects, and therefore, resulted
in a decrease in internal and external failure costs.
B) A decrease in internal and external failure costs resulted in less need for prevention and
appraisal costs.
C) Quality costs such as scrap and rework decreased by 48%.
D) Quality costs such as returns and repairs under warranty decreased by 40%.
43) Fackler Company's quality cost report is to be based on the following data:
Quality circles
$
12,000
Product recalls
$
24,000
Supplies used in testing and inspection
$
87,000
Net cost of scrap
$
59,000
Liability arising from defective products
$
38,000
Re-entering data because of keying errors
$
65,000
Debugging software errors
$
19,000
Test and inspection of incoming materials
$
65,000
Quality data gathering, analysis, and reporting
$
55,000
What would be the total prevention cost appearing on the quality cost report?
A) $99,000
B) $67,000
C) $120,000
D) $79,000
44) Fackler Company's quality cost report is to be based on the following data:
Quality circles
$
12,000
Product recalls
$
24,000
Supplies used in testing and inspection
$
87,000
Net cost of scrap
$
59,000
Liability arising from defective products
$
38,000
Re-entering data because of keying errors
$
65,000
Debugging software errors
$
19,000
Test and inspection of incoming materials
$
65,000
Quality data gathering, analysis, and reporting
$
55,000
What would be the total appraisal cost appearing on the quality cost report?
A) $130,000
B) $152,000
C) $146,000
D) $219,000
