Question

5. Which of the following would be classified as an internal failure cost on a quality cost report? A Supervision of testing and inspection activities B. Re-entering data because of keying errors C. Cost of field servicing and handling complaints D. Depreciation of test equipment 6. Which of the following would be classified as an external failure cost on a quality cost report? A Net cost of scrap B Product recalls C Rework labor and overhead D. Downtime caused by quality problems 7. Which of the following would be an argument for the use of net book value in the computation of operating assets in return on investment calculations? A. It allows the manager to replace old, worn-out equipment with a minimum adverse impact on ROI B. It allows ROI to decrease over time as assets get older. C. It is consistent with how plant and equipment items are reported on the balance sheet. D. It eliminates both age of equipment and method of depreciation as factors in ROI computations. 8. Residual income: A is the return on investment (ROI) percentage multiplied by average operating assets B. is the net operating income earned above a certain minimum required return on sales C. Is the net operating income earned above a certain minimum required return on average operating assets D. Will always be greater than zero 9. Minion Inc., a company that sells a single product, has provided its contribution format income statement for April Sales (6,200 units) Variable expenses Contribution margin Fixed expenses Net operating income $136,400 80.600 55,800 48.700 $ 7.100 If the company sells 5,800 units, its total contribution margin would be closest to: A. $55,800 B. $52,200 C. $ 6,642 D. $47,000

Answer 1

Q.5 : Internal Failure cost on cost quality report

Internal failure costs are incurred to remedy defects discovered before the product or service is delivered to the customer. These costs occur when the results of work fail to reach design quality standards and are detected before they are transferred to the customer

Hence answer is D - Reentering data because of keying error

Q.6 : External Failure cost on cost quality report

External failure costs are incurred to remedy defects discovered by customers. These costs occur when products or services that fail to reach design quality standards are not detected until after transfer to the customer

Hence Answer is B - Product Recalls

Q.7 : Answer is C - It is consistent how plant and equipment items are reported on balance sheet

Q.8 :  Residual income is the amount of net income generated in excess of the minimum rate of return

Hence Answer is C - is the net operating income earned above a certain minimum required return on average operating assets

Q.9 Answer is B - 52,200

Contribution Margin for 5800 products : Existing contribution / current sales unit * new sales unit i.e. 55800*5800/6200