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CMA Final · Strategic Cost Management · Quality Cost Management

Sundaram Pumps reports these annual quality costs: supplier quality audits Rs. 1,20,000; warranty repairs Rs. 2,50,000; final inspection Rs. 1,80,000; rework of rejected batches Rs. 90,000; operator quality training Rs. 60,000. What is the total cost of non-conformance (failure costs)?

The cost of non-conformance is Rs. 3,40,000, being rework of Rs. 90,000 (internal failure) plus warranty repairs of Rs. 2,50,000 (external failure). Supplier audits and training are prevention costs and final inspection is an appraisal cost, so they belong to conformance costs.

  1. ARs. 3,40,000Correct
  2. BRs. 4,00,000
  3. CRs. 2,50,000
  4. DRs. 5,20,000

Explanation

Failure costs comprise internal failure (rework Rs. 90,000) and external failure (warranty Rs. 2,50,000), totalling Rs. 3,40,000. Supplier audits and training are prevention, and final inspection is appraisal. Rs. 4,00,000 wrongly adds training to failure costs.

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