Skip to content

CMA Final · Strategic Cost Management · Quality Cost Management

Kaveri Electronics produces 50,000 units a year. Currently 4% of units are defective; each defective unit costs Rs. 300 to rework. Management plans a Rs. 2,50,000 yearly prevention programme that cuts the defect rate to 1.5%. The net annual saving from the programme is:

Defective units fall by 2.5 percentage points of 50,000, which is 1,250 units. At Rs. 300 each the rework saving is Rs. 3,75,000. Deducting the Rs. 2,50,000 programme cost leaves a net annual saving of Rs. 1,25,000.

  1. ARs. 3,75,000
  2. BRs. 6,25,000
  3. CRs. 1,25,000Correct
  4. DRs. 2,50,000

Explanation

Defects fall by 2.5% of 50,000 = 1,250 units. Rework saved = 1,250 x 300 = Rs. 3,75,000. Less programme cost Rs. 2,50,000 gives net saving Rs. 1,25,000. Rs. 3,75,000 ignores the programme cost.

Did you get it right without looking?

One question tells you little. A timed set on Quality Cost Management shows your real accuracy, how long you take and where you lose marks.

Practise Quality Cost ManagementFree diagnostic mock

More Quality Cost Management questions