CMA Final · Strategic Cost Management · Quality Cost Management
Godavari Textiles produces 8,000 metres of fabric per batch. Prevention and appraisal currently cost Rs. 1,20,000 per batch. 5% of output is found defective at final inspection; each defective metre is reworked at Rs. 40. In addition, 1% of output reaches customers defective, costing Rs. 300 per metre in returns. What is the total cost of quality per batch?
The total cost of quality is Rs. 1,60,000 per batch: Rs. 1,20,000 conformance cost plus Rs. 16,000 rework plus Rs. 24,000 returns.
- ARs. 2,16,000Correct
- BRs. 1,60,000
- CRs. 1,92,000
- DRs. 2,40,000
Explanation
Internal failure = 5% x 8,000 = 400 metres x Rs. 40 = Rs. 16,000. External failure = 1% x 8,000 = 80 metres x Rs. 300 = Rs. 24,000. Total = 1,20,000 + 16,000 + 24,000 = Rs. 1,60,000.
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