ACCA Applied Knowledge · Management Accounting · Performance measurement - application
A factory produced 12,000 units in a month, of which 480 were rejected at final inspection and scrapped. What was the rejection rate and what does this indicator measure?
The rejection rate is 480 divided by 12,000, which equals 4.0%. It is a measure of quality of output, because it shows the proportion of production failing inspection, not how efficiently labour or other inputs are used.
- A4.0%; quality of outputCorrect
- B4.2%; quality of output
- C4.0%; productivity of labour
- D3.8%; quality of output
Explanation
Rejection rate = 480 / 12,000 = 4.0%. This is a quality measure. 4.2% would wrongly divide by good units only (480/11,520 is 4.17%), and 3.8% has no basis. Labour productivity would relate output to hours, not rejects.
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