CHAPTER 4: ACTIVITY-BASED COSTING AND MANAGEMENT 12.

An approach to developing new ways to perform existing activities is called

Multiple Choice a. process value analysis b. re-engineering
1. Activity-based costing c. caveat analysis d. benchmarking
a. requires the identification of cost drivers. 13. Which of the following statements is true?
b. is used only in JIT operations. a. The traditional approach to costing uses many different cost drivers.
c. applies only to discretionary fixed costs. b. Costs that are indirect to products are by definition traceable to directly
d. does not help to identify activities as value-adding or non-value-adding. to products.
2. A company using activity-based costing c. Costs that are indirect to products are traceable to some activity.
a. tries to identify cost drivers. d. All of the above statements are true.
b. allocates all costs to individual products. 14. Which of the following is NOT a sign of poor cost data?
c. looks for the activity with which total costs are most closely associated. a. Competitors' prices for high-volume products appear much too high.
d. is probably using the JIT philosophy. b. The company seems to have a highly profitable niche all to itself.
3. Machine setups is an example of a(n) ____________ activity. c. Customers don't balk at price increases for low-volume products.
A. Batch B. Facility-sustaining d. Competitors' prices for low-volume products appear much too high.
C. Product-sustaining D. Unit 15. Which of the following is a sign of poor cost data?
4. Machine hours is an example of a(n) ____________ activity. a. Competitors' prices for high-volume products appear much too high.
a. Batch b. Facility-sustaining b. The company seems to have a highly profitable niche all to itself.
c. Product-sustaining c. Unit c. Customers don't balk at price increases for low-volume products.
5. Landscaping is an example of a(n) _____________ activity. All of the statements are true.
a. Batch b. Facility-sustaining 16. Number of purchase orders is an example of a(n) ____________ activity.
c. Product-sustaining d. Unit a. Batch b. Facility-sustaining
6. Material cost is an example of a(n) _____________ activity. c. Product-sustaining d. Unit
a. Batch 17. Direct labor hours is an example of a(n) ____________ activity.
b. Facility-sustaining a. Batch b. Facility-sustaining
c. Product-sustaining c. Product-sustaining d. Unit
d. Unit 18. Property taxes on the plant is an example of a(n) _____________ activity.
7. The activities that drive resource requirements are called the a. Batch `b. Facility-sustaining
a. activity drivers b. cost objects b. Product-sustaining d. Unit
c. resource drivers d. sustaining activities 19. Production volume is an example of a(n) _____________ activity.
8. The resource utilized by a given product divided by the total amount of the a. Batch b. Facility-sustaining
resource available is called the c. Product-sustaining d. Unit
a. activity driver b. consumption ratio 20. ____________ are those performed each time a unit is produced or sold.
c. cost object d. sustaining activity a. Batch-level activities b. Facility-sustaining activities
9. The segment for which you are estimating the cost is called the c.Sustaining activities d. Unit-level activities
a. activity driver b. consumption ratio 21. ____________ are those that a company performs when it makes a group of
b. cost object d. sustaining activity units.
10. A tool that focuses on manufacturing processes and seeks to reduce or a. Batch-level activities b. Facility-sustaining activities
optimize the activities performed within the process is c.Sustaining activities d. Unit-level activities
a. process value analysis b. re-engineering 22. ____________ relate to an entire plant as a whole.
c. caveat analysis d. benchmarking a. Batch-level activities b. Facility-sustaining activities
11. A tool that compares how tasks are performed internally with the best practices c.Sustaining activities d. Unit-level activities
of industry leaders is 23. ____________ arise because a company maintains a particular product or
a. process value analysis b. re-engineering service.
b. caveat analysis d. benchmarking a. Batch-level activities b. Facility-sustaining activities
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 c.Sustaining activities d.Unit-level activities a. $200 b. $333
24. Which of the following is not a type of sustaining activity? c. $400 d. Some other number
a. Capacity-sustaining b. Customer-sustaining 33. Genco manufactures two versions of a product. Production and cost
c.Distribution-channel sustaining d. Unit-sustaining information show the following:
25. Which of the following is true regarding activity-based management? Model A Model B
a. ABM is using information about activities to manage portions of the Units produced 200 400
organization other than costs. Material moves (total) 20 80
b. ABM is applying ABC to external financial reporting. Direct labor hours per unit 1 3
c. ABM requires the use of re-engineering principles. Material handling costs total $200,000. Direct labor hours are used to allocate
d. All of the above are true. overhead costs. The material handling costs allocated to each unit of
26. The quality costs that are incurred to determine whether particular units of product Model A would be:
meet quality standards are a. $143 b. $200
a. appraisal costs. b. external failure costs. c. $333 d. Some other number
c. internal failure costs. d. prevention costs. 34. Cadott Manufacturing produces three products. Production and cost
27. The cost of downtime on machines while rework is being performed is a(n) information show the following:
a. appraisal cost. b. external failure cost. Model X Model Y Model Z
c. internal failure cost. d. prevention cost. Units produced 1,000 3,000 6,000
28. The cost of processing customer complaints is a(n) Direct labor hours 2,000 1,000 2,000
a. appraisal cost. b. external failure cost. Number of inspections 20 30 50
c. internal failure cost. d. prevention cost. Inspection costs totaled $100,000. Using ABC, inspections costs allocated to
29. Worker training is a(n) each unit of Model X would be
a. appraisal cost b. external failure cost. a. $10.00 b. $20.00
c. internal failure cost d. prevention cost. c. $40.00 d. Some other number
30. The cost to repair a unit of product that fails after it is sold is a(n) 35. Cadott Manufacturing produces three products. Production and cost
a. appraisal cost. b. external failure cost. information show the following:
c. internal failure cost. d. prevention cost. Model X Model Y Model Z
31. Genco manufactures two versions of a product. Production and cost Units produced 1,000 3,000 6,000
information show the following: Direct labor hours 2,000 1,000 2,000
Model A Model B Number of inspections 20 30 50
Units produced 200 400 Inspection costs totaled $100,000. Using ABC, inspections costs allocated to
Material moves (total) 20 80 each unit of Model Y would be
Direct labor hours per unit 1 2 a. $ 6.67 b. $10.00
Material handling costs total $200,000. Under ABC, the material handling costs c. $20.00 d. Some other number
allocated to each unit of Model A would be: 36. Cadott Manufacturing produces three products. Production and cost
a. $10 b. $200 information show the following:
c. $333 d. Some other number Model X Model Y Model Z
32. Genco manufactures two versions of a product. Production and cost Units produced 1,000 3,000 6,000
information show the following: Direct labor hours 2,000 1,000 2,000
Model A Model B Number of inspections20 30 50
Units produced 200 400 Inspection costs totaled $100,000. Using ABC, inspections costs allocated to
Material moves (total) 20 80 each unit of Model Z would be
Direct labor hours per unit 1 2 a. $ 6.67 b. $ 8.33
Material handling costs total $200,000. Under ABC, the material handling costs c. $10.00 d. Some other number
allocated to each unit of Model B would be: 37. Cadott Manufacturing produces three products. Production and cost
35
 information show the following: Units produced 2,000 6,000 12,000
Model X Model Y Model Z Direct labor hours 4,000 2,000 4,000
Units produced 1,000 3,000 6,000 Number of setups 100 150 250
Direct labor hours 2,000 1,000 2,000 The consumption ratios based on units produced would be:
Number of inspections20 30 50 Q R S
Inspection costs totaled $100,000. Using direct labor hours as the allocation a. 40%-20%-40%
base, inspections costs allocated to each unit of Model X would be b. 20%-30%-50%
a. $10.00 b. $20.00 c. 10%-30%-60%
c. $40.00 d. Some other number d. Some other numbers
38. Cadott Manufacturing produces three products. Production and cost 42. Superior Inc. produces three products. Production and cost information is as
information show the following follows:
Model X Model Y Model Z Model Q Model R Model S
Units produced 1,000 3,000 6,000 Units produced 2,000 6,000 12,000
Direct labor hours 2,000 1,000 2,000 Direct labor hours 4,000 2,000 4,000
Number of inspections 20 30 50 Number of setups 100 150 250
Inspection costs totaled $100,000. . Using direct labor hours as the allocation The consumption ratios for direct labor hours would be:
base, inspections costs allocated to each unit of Model Y would be Q R S
a. $6.67 b. $10.00 a. 40%-20%-40%
c. $20.00 d. Some other number b. 20%-30%-50%
39. Cadott Manufacturing produces three products. Production and cost c. 10%-30%-60%
information show the following: d. Some other numbers
Model X Model Y Model Z 43. Waupaca Company produces three products with the following production and
Units produced 1,000 3,000 6,000 cost information:
Direct labor hours 2,000 1,000 2,000 Model A Model B Model C
Number of inspections 20 30 50 Units produced 2,000 6,000 12,000
Inspection costs totaled $100,000. Using direct labor hours as the allocation Direct labor hours (total) 4,000 2,000 4,000
base, inspections costs allocated toCeach unit of Model Z would be Number of setups 100 150 250
a. $6.67 b. $8.33 Number of shipments 200 225 275
c. $10.00 d. Some other number Engineering change orders 15 10 5
40. Superior Inc. produces three products. Production and cost information is as Overhead costs include setups $90,000; shipping costs $140,000; and
follows: engineering costs $180,000. What would be the per unit overhead cost for
Model Q Model R Model S Model A if direct labor hours were the allocation base?
Units produced 2,000 6,000 12,000 a. $20.50 b. $41.00
Direct labor hours 4,000 2,000 4,000 c. $82.00 d. Some other number
Number of setups 100 150 250 44. Waupaca Company produces three products with the following production and
The consumption ratios for number of setups would be: cost information:
Q R S Model A Model B Model C
a. 40%-20%-40% Units produced 2,000 6,000 12,000
b. 20%-30%-50% Direct labor hours (total) 4,000 2,000 4,000
c. 10%-30%-60% Number of setups 100 150 250
d. Some other numbers Number of shipments 200 225 275
41. Superior Inc. produces three products. Production and cost information is as Engineering change orders 15 10 5
follows: Overhead costs include setups $90,000; shipping costs $140,000; and
Model Q Model R Model S engineering costs $180,000. What would be the per unit overhead cost for
36
 Model A if activity-based costing were used? Model 1 Model 2
a. $20.50 b. $74.00 Units produced 1,000 200
c. $82.00 d. Some other number Material moves (total) 100 40
45. Waupaca Company produces three products with the following production and Testing time (total) 250 125
cost information: Direct labor hours per unit 1 5
Model A Model B Model C The controller has determined total overhead to be $480,000. $140,000 relates to
Units produced 2,000 6,000 12,000 material moves; $150,000 relates to testing; the remainder is related to labor time.
Direct labor hours (total) 4,000 2,000 4,000 If Kimball uses activity-based costing to allocate overhead to each model, what
Number of setups 100 150 250 would overhead per unit be for Model 1?
Number of shipments 200 225 275 a. $400.00 b. $295.00
Engineering change orders 15 10 5 c. $240.00 d. $120.00
Overhead costs include setups $90,000; shipping costs $140,000; and 49. Kimball Company produces two products in a single factory. The following
engineering costs $180,000. What would be the per unit overhead cost for production and cost information has been determined:
Model B if activity-based costing were used? Model 1 Model 2
a. $22.00 b. $66.00 Units produced 1,000 200
c. $123.00 d. Some other number Material moves (total) 100 40
46. Waupaca Company produces three products with the following production and Testing time (total) 250 125
cost information: Direct labor hours per unit 1 5
Model A Model B Model C The controller has determined total overhead to be $480,000. $140,000 relates to
Units produced 2,000 6,000 12,000 material moves; $150,000 relates to testing; the remainder is related to labor time.
Direct labor hours (total) 4,000 2,000 4,000 If Kimball uses direct labor hours to allocate overhead to each model, what would
Number of setups 100 150 250 overhead per unit be for Model 2?
Number of shipments 200 225 275 a. $158.33 b. $400.00
Engineering change orders 15 10 5 c. $950.00 d. $1,200.00
Overhead costs include setups $90,000; shipping costs $140,000; and engineering 50. Kimball Company produces two products in a single factory. The following
costs $180,000. What would be the per unit overhead cost for Model C if activity- production and cost information has been determined:
based costing were used? Model 1 Model 2
a. $10.83 b. $32.50 Units produced 1,000 200
c. $245.28 d. Some other number Material moves (total) 100 40
47. Kimball Company produces two products in a single factory. The following Testing time (total) 250 125
production and cost information has been determined: Direct labor hours per unit 1 5
Model 1 Model 2 The controller has determined total overhead to be $480,000. $140,000 relates to
Units produced 1,000 200 material moves; $150,000 relates to testing; the remainder is related to labor time.
Material moves (total) 100 40 If Kimball uses activity-based costing to allocate overhead to each model, what
Testing time (total) 250 125 would overhead per unit be for Model 2?
Direct labor hours per unit 1 5 a. $158.33 b. $415.93
The controller has determined total overhead to be $480,000. $120,000 relates to c. $925.00 d. Some other number
material moves; $150,000 relates to testing; the remainder is related to labor time.
If Kimball uses direct labor hours to allocate overhead to each model, what would True-False
overhead per unit be for Model 1?
a. $10.00 b. $120.00 F 1. ABC can only be used in a company that produces a single product.
c. $240.00 d. $400.00
48. Kimball Company produces two products in a single factory. The following F 2. A company that uses only volume-based measures will overcost its low-
production and cost information Has been determined: volume products.
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 Cost driver In Pool Activity Rate
T 3. ABC will be most useful in estimating fixed costs. Direct labor hours $100,000 25,000 $ 4.00
Number of batches 150,000 200 750.00
T 4. Two major influences on costs are complexity and diversity. Design changes 50,000 125 400.00

T 5. Volume-based measures will tend to overcost high volume products. Product X Product Y
Direct labor hours, $4,000 $1,600
F 6. Activities that drive resource requirements are known as activity drivers. Number of batches 7,500 15,000
Design changes 400 6,000
F 7. ABC is required for GAAP financial reporting. $11,900 $22,600
2. Lewis Company has two major segments with the following information:
F 8. ABC will benefit a JIT operation more than a non-JIT operation. Upstate Downstate Total_
Annual revenue $200,000 $600,000 $800,000
F 9. External failure costs are made up solely of opportunity costs. Annual salesperson salaries $30,000 $45,000 $75,000
Number of customers 50 75 125
F 10. The acceptable quality level is the point where internal failure costs are Miles driven 80,000 40,000
minimized. The business also has overhead costs as follows:
Cost pool Cost in pool Cost driver__________
Travel $ 36,000 miles driven
Problems Entertainment 144,000 number of customers
1. Scottso Enterprises incurs $300,000 in manufacturing overhead costs each Administrative 150,000 salaries
month. The company has been allocating overhead to individual product lines Total $330,000
based on direct labor hours a. Allocate the overhead costs to the segments based on sales revenue.
Amount Amount of b. Determine the income of each segment.
Cost driver In Pool Activity c. Allocate the overhead costs to the segments using ABC.
Direct labor hours $100,000 15,000 d. Determine the income of each segment under ABC.
Number of batches 150,000 200 SOLUTION:
Design changes 50,000 125 a. Upstate: $82,500 [$330,000 x ($200,000/$800,000)]
Total overhead costs $300,000 Downstate: $247,500 [$330,000 x ($600,000/$800,000)]
Two products have the following characteristics: b. Upstate: $87,500 [$200,000 - $30,000 - $82,500]
Product X Product Y Downstate: $307,500 [$600,000 - $45,000 - $247,500]
Direct labor hours 1,000 400
Number of batches 10 20 c. &.
Design changes 1 15 Upstate Downstate Total_
a. Determine the overhead to be allocated to each product using direct labor hours Annual revenue $200,000 $600,000 $800,000
as the only cost driver. Annual salesperson salaries 30,000 45,000 75,000
b. Determine the overhead to be allocated to each product using the three drivers Travel 24,000 12,000 36,000
identified Entertainment 57,600 86,400 144,000
SOLUTION Administrative 60,000 90,000 150,000
a. Product X: $12,000 [1,000 x ($300,000/15,000)] Income $ 28,400 $366,600 $395,000
Product Y: $ 4,800 [400 x ($300,000/15,000)] 3. Johnson & Mathey is an architectural and landscape services firm. The firm
b. Product X: $11,900; Product Y: $22,600 operates in three major segments. The following information has been obtained,
New Design Remodel Landscape Total__
Amount Amount of Annual revenues $500,000 $1,200,000 $300,000 $2,000,000
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 Number of jobs 50 150 200 400 Line-sustaining costs 90,000 130,000 230,000 450,000
Chargeable hours 6,000 10,000 14,000 30,000 Segment income $ 10,000 $ 10,000 $ 70,000 $ 90,000
Salaries for the year were $800,000; overhead for the year was $1,000,000. Company-sustaining 60,000
a. Determine the profits for each segment, assuming costs are allocated Enterprise income $ 30,000
based on annual revenues. 5. Ellington & Hodges is a public relations firm. The firm operates in three major
b. Determine the profits for each segment, assuming costs are allocated segments. The following information has been obtained,
based on the number of jobs.
c. Determine the profits for each segment, assuming costs are allocated Political Corporate Celebrity Total
based on chargeable hours Annual revenues $750,000 $800,000 $1,450,000 $3,000,00
SOLUTION: Number of clients 50 150 200 400
a. New Design: $50,000 [$500,000 - ($1,800,000 x $500,000/$2,000,000)] Chargeable hours 6,000 10,000 14,000 30,000
Remodel: $120,000 [$1,200,000 - ($1,800,000 x $1,200,000/$2,000,000)] Total salaries for the year were $900,000; overhead was $600,000.
Landscape $30,000 [$300,000 - ($1,800,000 x $300,000/$2,000,000) a. Determine the profits for each segment, assuming costs are allocated
b. New Design: $275,000 [$500,000 - ($1,800,000 x 50/400)] based on annual revenues.
Remodel: $525,000 [$1,200,000 - ($1,800,000 x 150/400)] b. Determine the profits for each segment, assuming overhead costs are
Landscape $(600,000) [$300,000 - ($1,800,000 x 200/400) allocated based on the number of clients and salaries are allocated based
c. New Design: $140,000 [$500,000 - ($1,800,000 x 6,000/30,000)] on chargeable hours.
Remodel: $600,000 [$1,200,000 - ($1,800,000 x 10,000/30,000)] SOLUTION:
Landscape $(540,000) [$300,000 - ($1,800,000 x 14,000/30,000 a. Political: $375,000 [$750,000 - ($1,500,000 x $750,000/$3,000,000)]
4. Coleman Company produces three products, X, Y, & Z. The income statement Corporate: $400,000 [$800,000 - ($1,500,000 x $800,000/$3,000,000)]
for the firm as a whole is: Celebrity: $725,000 [$1,450,000 - ($1,500,000 x $1,450,000/$3,000,000)]
Sales $1,850,000
Less variable costs 1,310,000 b. Political Corporate Celebrity Total
Contribution margin $ 540,000 Annual revenues $750,000 $800,000 $1,450,000 $3,000,000
Less fixed costs Salaries 180,000 300,000 420,000 900,000
Selling 330,000 Chargeable hours 120,000 200,000 280,000 600,000
Administrative 180,000 510,000 Profits $450,000 $300,000 $ 750,000 $1,500,000
Net income $ 30,000 6. Danner Company incurs $1,600,000 in manufacturing overhead costs each
month. The company has been allocating overhead to individual product lines
The sales, variable costs, and line-sustaining fixed costs for the four products are: based on direct labor hours
Cost driver Amount In Pool Amount of Activity
Q___ R___ S_ __ Direct labor hours $500,000 40,000
Sales $250,000 $400,000 $1,200,000 Number of setups 700,000 1,000
Variable costs 60% 65% 75% Number of tests 400,000 500
Line-sustaining costs $90,000 $130,000 $ 230,000 Total overhead costs $1,600,000
Two products have the following characteristics:
a. Prepare an income statement segmented by product line, including a Product S Product T
column for the entire firm. Be sure to show segment income as well as Direct labor hours 2,000 1,000
total enterprise income. Number of setups 20 100
SOLUTION: Number of tests 2 150
Q R S Total
Sales $250,000 $400,000 $1,200,000 $1,850,000 a. Determine the overhead to be allocated to each product using direct labor
Variable costs 150,000 260,000 900,000 1,310,000 hours as the only cost driver.
Contribution margin $100,000 $140,000 $ 300,000 $ 540,000 b. Determine the overhead to be allocated to each product using the three
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 drivers identified. Receiving 240,000 60,000 300,000
SOLUTION: Material moves 233,750 41,250 275,000
a. Product S: $80,000 [2,000 x ($1,600,000/40,000)] Administrative 140,625 84,375 225,000
Product T: $40,000 [1,000 x ($1,600,000/40,000)] Income $(64,375) $464,375 $ 400,000
b. Product S: $40,600; Product T: $202,500 8. Ventura Company produces four products, Q, R, S & T. The income statement
Cost driver Amount In Pool Amount of Activity Rate for the firm as a whole is:
Direct labor hours $500,000 40,000 $ 12.50 Sales $3,000,000
Number of setups 700,000 1,000 700.00 Less variable costs 1,870,000
Number of tests 400,000 500 800.00 Contribution margin $1,130,000
Less fixed costs
Product S Product T Manufacturing $320,000
Direct labor hours, $25,000 $12,500 Selling 290,000
Number of setups 14,000 70,000 Administrative 168,000 778,000
Number of tests 1,600 120,000 Net income $ 352,000
$40,600 $202,500
7. Seneca Company has two products with the following information: The sales, contribution margin ratios, and line-sustaining fixed costs for the four
Engine Race products are:
Rebuilds Cars Total__
Annual revenue $1,200,000 $1,400,000 $2,600,000 Q R S T
Material costs 400,000 $600,000 $1,000,000 Sales $200,000 $400,000 $1,000,000 $1,400,000
Labor costs 250,000 150,000 $400,000 Contribution margin 35% 40% 20% 50%
Number of receipts 8,000 2,000 Line-sustaining costs $60,000 $80,000 $168,000 $270,000
Number of batches 425 75
The business also has overhead costs as follows: b. Prepare an income statement segmented by product line, including a
Cost pool Cost in pool Cost driver__________ column for the entire firm. Be sure to show segment income as well as
Receiving $300,000 number of receipts total enterprise income.
Material moves 275,000 number of batches SOLUTION: Q R S T
Administrative 225,000 labor cost Total
Total $800,000 Sales $200,000 $400,000 $1,000,000 $1,400,000 $3,000,000
a. Allocate the overhead costs to the segments based on material costs. Variable costs 130,000 240,000 800,000 700,000 1,870,000
b. Determine the income of each segment. Contribution margin $ 70,000 $160,000 $ 200,000 $700,000 $1,130,000
c. Allocate the overhead costs to the segments using ABC. Line-sustaining costs 60,000 80,000 168,000 270,000 578,000
d. Determine the income of each segment under ABC. Segment income $ 10,000 $ 80,000 $ 32,000 $ 430,000 $ 552,000
SOLUTION: Company-sustaining 200,000
a. Engines: $320,000 [$800,000 x ($400,000/$1,000,000)] Enterprise income $ 352,000
Race Cars: $480,000 [$800,000 x ($600,000/$1,000,000)
b. Engines: $230,000 [$1,200,000 - $400,000 - $250.000 - $320,000] 9. DJH Corp has identified the following costs.
Race Cars: $170,000 [$1,400,000 - $600,000 - $150,000 - $480,000]
c. & d. Costs to improve the production process $175,000
Engine Race Incoming inspection costs 110,000
Rebuilds Cars Total__ Design engineer salaries 325,000
Annual revenue $1,200,000 $1,400,000 $2,600,000 Rework of defective units 122,000
Material costs 400,000 600,000 1,000,000 Salaries for service repair workers 265,000
Labor costs 250,000 150,000 400,000 Warranty costs 335,000
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 Finished goods inspection 165,000 3. Worker training X
Scrap 118,000 4. Downtime on machinery due
Categorize each of the costs into the appropriate quality cost category and to rework X
prepare a total for each. 5. Product returns X
SOLUTION: 6. Product design X
Prevention costs: 7. Preventive maintenance X
Costs to improve the production process $175,000 8. Wages for field repair
Design engineer salaries 325,000 Workers X
Total prevention costs $500,000 9. Quality laboratory X
Appraisal costs: 10. Customer complaints X
Incoming inspection costs $110,000
Finished goods inspection 165,000
Total appraisal costs 275,000
Internal failure costs:
Rework of defective units $122,000
Scrap 118,000
Total internal failure costs 240,000
External failure costs:
Salaries for service repair workers $265,000
Warranty costs 335,000
Total external failure costs 600,000
10. Following is a list of activities that pertains to quality. Classify each as either
external failure, internal failure, appraisal, or prevention.

External Internal
Failure Failure Appraisal Prevention
1. In-process inspection
2. Warranty expenses
3. Worker training
4. Downtime on machinery due to rework
5. Product returns
6. Product design
7. Preventive maintenance
8. Wages for field repair workers
9. Quality laboratory
10. Customer complaints

SOLUTION:

External Internal
Failure Failure Appraisal Prevention
1. In-process inspection X
2. Warranty expenses X
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