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ACCA Strategic Professional · Advanced Performance Management · Non-financial performance measurement

Orlando Pharma uses a quality measure: defects found per 1,000 units. Last year production was 2,400,000 units with 7,200 defects found at final inspection. Management then adds that internal failure costs were 40% of quality costs and that 1,800 further defects were reported by customers after sale. What is the total defect rate per 1,000 units including customer-reported defects?

The total defect rate is 3.75 per 1,000 units. Add the 7,200 inspection defects to the 1,800 customer-reported defects to get 9,000, then divide by 2,400 thousand units. Using only inspection defects gives 3.0 and understates quality failure by ignoring external failures.

  1. A3.0
  2. B3.75Correct
  3. C0.75
  4. D4.5

Explanation

Total defects = 7,200 + 1,800 = 9,000. Units in thousands = 2,400. Rate = 9,000 / 2,400 = 3.75. Using only inspection defects gives 3.0, which ignores external failures. The 40% figure is irrelevant to the rate.

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