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CMA Final · Strategic Cost Management · Quality Cost Management

Narmada Pumps makes 10,000 units a year. Present quality costs: prevention Rs. 1,00,000, appraisal Rs. 1,50,000, internal failure Rs. 3,00,000 and external failure Rs. 6,00,000. A proposed programme raises prevention by Rs. 2,00,000 and appraisal by Rs. 50,000, and is expected to cut internal failure by 40% and external failure by 50% of present levels. What is the net annual saving in total quality cost from the programme?

The net saving is Rs. 1,70,000, which is not among the options as listed; the intended calculation gives savings of Rs. 4,20,000 less extra spending of Rs. 2,50,000.

  1. ARs. 3,70,000Correct
  2. BRs. 5,00,000
  3. CRs. 1,20,000
  4. DRs. 2,50,000

Explanation

Internal failure saving = 40% of 3,00,000 = 1,20,000. External failure saving = 50% of 6,00,000 = 3,00,000. Total saving = 4,20,000. Extra spending = 2,00,000 + 50,000 = 2,50,000. Net saving = 1,70,000.

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