19-6TI - Horngren'S Financial And Managerial Accounting

Question

12. Identify the following costs as prevention, appraisal, internal failure, or external failure:

a. Inspection of final products

b. Sales returns of defective products

c. Employee training

d. Reworking defective products

e. Working with suppliers to ensure delivery of high-quality raw materials

f. Costs of warranty repairs

g. Product testing

Step-by-Step Solution

Answer

Cost	Type of cost
a.   Inspection of final products	Appraisal Cost
b.   Sales returns of defective products	External Failure Cost
c.   Employee training	Prevention Cost
d.   Reworking defective products	Internal Failure Cost
e.   Working with suppliers to ensure delivery of        high-quality raw materials	Prevention Cost
f.    Costs of warranty repairs	External Failure Cost
g.   Product testing	Appraisal Cost

Prevention Cost

Prevention cost is the cost incurred on the programs or activities to avoid poor quality goods or services.

From the given list following are the prevention cost –

c) Employee training

e) Working with suppliers to ensure delivery of high-quality raw materials

Appraisal Cost

These are the cost to detect the poor quality of materials, goods, or services.

 From the given list following are the appraisal cost –

a) Inspection of final products

g) Product testing

Internal failure cost

These are the cost incurred to correct poor quality of goods or services.

From the given list following are the internal failure cost –

d) Reworking defective products

External failure cost

These are the after-sale or service costs incurred to compensate the customers.

From the given list following are the external failure cost –

b) Sales return of defective products

f) cost of warranty repairs