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CMA Final · Strategic Cost Management · Quality Cost Management

Tapti Plastics reports sales of Rs. 50,00,000 for the year. Its quality costs are prevention Rs. 2,00,000, appraisal Rs. 3,00,000, internal failure Rs. 4,00,000 and external failure Rs. 6,00,000. What percentage of sales is the cost of poor quality (failure costs)?

The cost of poor quality is 20% of sales. Failure costs are internal Rs. 4,00,000 plus external Rs. 6,00,000, totalling Rs. 10,00,000, which divided by sales of Rs. 50,00,000 gives 20%.

  1. A20%Correct
  2. B30%
  3. C10%
  4. D12%

Explanation

Cost of poor quality is internal plus external failure = 4,00,000 + 6,00,000 = Rs. 10,00,000. As a percentage of sales: 10,00,000 / 50,00,000 = 20%. Using all four categories would give 30%, which wrongly includes conformance costs.

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