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CMA Final · Strategic Cost Management · Quality Cost Management

Yamuna Appliances spends Rs. 1,50,000 on prevention, Rs. 2,50,000 on appraisal, Rs. 2,00,000 on internal failure and Rs. 4,00,000 on external failure. Sales are Rs. 1,00,00,000. What is the cost of quality as a percentage of sales, and what proportion of it is failure cost?

Cost of quality is 10% of sales, and failure costs form 60% of it. Total is Rs. 10,00,000, of which internal and external failure together are Rs. 6,00,000. The 40% figure is the conformance share, not the failure share.

  1. A10%, with failure cost 60%Correct
  2. B10%, with failure cost 40%
  3. C6%, with failure cost 100%
  4. D10%, with failure cost 50%

Explanation

Total COQ = 1,50,000 + 2,50,000 + 2,00,000 + 4,00,000 = 10,00,000, which is 10% of sales. Failure cost = 6,00,000, which is 60% of COQ. The 40% option is the conformance share, a wrong base.

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