Question

Which of the following equations measures a price variance?

a.AQ × (AP − SP)

b.SQ × (AP − SP)

c.SP × (AQ − SQ)

Product recalls are

a.prevention costs.

b.internal failure costs.

c.external failure costs.

d.appraisal costs.

In a quality cost report, quality costs are grouped into categories and then each category of quality costs is expressed as a percentage of

a.total defective units.

b.total costs.

c.total quality costs.

d.total sales.

The usage variances focus on the difference between

a.actual quantity used and standard quantity allowed for actual production.

b.actual quantity used and standard quantity allowed for budgeted production.

c.actual costs of inputs and standard costs of inputs.

d.both "actual quantity used and standard quantity allowed for actual production" and "actual costs of inputs and standard costs of inputs".

d.(AQ − SQ) × (AP − SP)

Answer 1

Q. Which of the following equations measures the price variance?

Ans: Option (A), i.e, AQ * (AP-SP) is the correct answer. It is because the Price variance is the difference between the actual price paid by a company to purchase an item and its standard price, multiplied by the number of units purchased. The formula for price variance is: (Actual Price(AP) - Standard Price(SP)) * Actual Quantity (AQ)

Q. Product Recalls are?

Ans: Option (C),i.e, External Failure Costs is the correct answer. It is because external failure costs are incurred to remedy defects discovered by customers after the customer receives the product or service. Eg: Warranty claims, repairs and servicing, handling customer complaints, investigation of rejected or recalled products,etc.

Hence, as product recalls are defects discovered after customer receives the product or service, they are categorised into external failure cost.

Prevention cost is incorrect option as these are cost incurred to avoid quality problems and are incurred before actual operation(Eg:Training, Quality Planning). Internal failure costs is also an incorrect option as it is incurred to rectify defects before the product or service is delivered to the customer(Eg:Quality audit, verification). Further, appraisal cost is also an incorrect option as is deals with measuring and monitoring activities pertaining to quality.

Q. In a quality cost report, quality costs are grouped into categories............................percentage of?

Ans: Option (d), i.e, total sales is the correct answer. The financial significance of quality costs can be assessed comprehensively by expressing these costs as a percentage of actual sales. The quality cost report by expressing quality costs as a percentage of total sales, communicates that if the total quality costs as a percentage of sales is quite high, then there are significant opportunities to improve quality and reduce quality costs.

Q. The usage variances focuses on the difference between?

Ans: Option(A), i.e, actual quantity used and standard quantity allowed for actual production  is the correct answer. A usage variance is the difference between the standard quantity specified for actual production and the actual quantity used at the standard purchase price.. When used in conjunction with material, it is also known as material usage variance and the formula for the same is : (Standard Quantity - Actual Quantity) * Standard Price

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