Eade Company\'s quality cost report is to be based on the following data: Liabil

Question

Eade Company's quality cost report is to be based on the following data: Liability arising from defective products $39,300 Lost sales due to poor quality $22,400 Test and inspection of in-process goods $17,500 Quality circles $66,600 Net cost of spoilage $62,400 Debugging software errors $64,800 Rework labor and overhead $19,900 Final product testing and inspection $48,100 Statistical process control activities $40,200 What would be the total external failure cost appearing on the quality cost report?

$381,200

$61,700

$87,200

$208,800

Explanation / Answer

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. So returns, warranty claims, complaints, repairs are external factors.

So, Liability arising from defective products and lost sale due to poor quality(return) are external factors

$39300+$22400=$61700 Ans

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