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Schedule of Activity Costs: Quality Control Activities Activity Cost Process audits $50,000 Training of machine operators 28,000 Processing returned products 19,000 Scrap processing (disposal) 25,000 Rework 8,000 Preventative maintenance 30,000 Product design 46,000 Warranty work 12,000 Finished goods inspection 23,000 From the above schedule of activity costs, determine the external failure costs
Schedule of Activity Costs:
| Quality Control Activities | Activity Cost |
|---|---|
| Process audits | $50,000 |
| Training of machine operators | 28,000 |
| Processing returned products | 19,000 |
| Scrap processing (disposal) | 25,000 |
| Rework | 8,000 |
| Preventative maintenance | 30,000 |
| Product design | 46,000 |
| Warranty work | 12,000 |
| Finished goods inspection | 23,000 |
From the above schedule of activity costs, determine the external failure costs.
A. $39,000
B. $19,000
C. $12,000
D. $31,000
Expert Solution
The answer is D. $31,000.
| Processing Returned Products | $19,000 |
| Warranty Work | 12,000 |
| Total | $31,000 |
External Failure Cost includes cost warranty expenses, legal cost from customer lawsuit, loss on future sales, product return cost, and product recalls.
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