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ACCA Strategic Professional · Advanced Performance Management · Performance improvement models and techniques

Calder Foods produces ready meals. Quality costs last year were: staff training in quality procedures $40,000; inspection of incoming ingredients $60,000; scrap and rework $150,000; customer refunds and warranty handling $90,000; supplier quality audits $30,000. Using the prevention, appraisal, internal failure and external failure classification, what are the total prevention plus appraisal costs, and which statement fits TQM thinking?

Prevention and appraisal costs total $130,000: training $40,000 and supplier audits $30,000 are prevention, and ingredient inspection of $60,000 is appraisal. The failure costs of $240,000 are separate. TQM argues that investing more in prevention reduces failure costs and the need for inspection.

  1. A$130,000; TQM encourages spending more on prevention to reduce failure costsCorrect
  2. B$130,000; TQM encourages spending more on failure to reduce appraisal costs
  3. C$100,000; TQM encourages spending more on prevention to reduce failure costs
  4. D$240,000; TQM encourages spending more on appraisal to reduce prevention costs

Explanation

Prevention: training 40,000 + supplier audits 30,000 = 70,000. Appraisal: incoming inspection 60,000. Total 130,000. Failure costs are 150,000 + 90,000 = 240,000. TQM holds that higher prevention spending lowers failure costs. The $100,000 option omits the supplier audits wrongly or misclassifies items.

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