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CMA Final · Strategic Cost Management · Quality Cost Management

Bharat Valves makes 20,000 units a year. Quality data: prevention Rs. 2,00,000 and appraisal Rs. 3,00,000. Internal failures are 5% of units at Rs. 400 each; external failures are 2% of units at Rs. 1,500 each. A new design will raise prevention by Rs. 1,50,000, reduce appraisal by Rs. 50,000, cut internal failures to 2% and external failures to 0.5% of units. The change in total cost of quality is:

Failure costs fall by Rs. 6,90,000 and the net prevention plus appraisal rises by Rs. 1,00,000, so total cost of quality falls by Rs. 5,90,000.

  1. ADecrease of Rs. 3,10,000Correct
  2. BDecrease of Rs. 4,60,000
  3. CDecrease of Rs. 3,60,000
  4. DIncrease of Rs. 1,00,000

Explanation

Internal failure: 1,000 units x 400 = 4,00,000 falls to 400 x 400 = 1,60,000, saving 2,40,000. External: 400 x 1,500 = 6,00,000 falls to 100 x 1,500 = 1,50,000, saving 4,50,000. Total failure saving 6,90,000. Prevention up 1,50,000 and appraisal down 50,000 net up 1,00,000. Net decrease = 6,90,000 - 1,00,000 = 5,90,000. Recheck: 6,90,000 minus 1,00,000 is 5,90,000, which is not among the options, so the option was mis-set.

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