A Prime Example of an Internal Failure Cost Is The

question 85

Multiple Choice

A prime example of an internal failure cost is the:

• A) labor cost associated with inspecting every item produced.
• B) labor cost associated with repairing an item returned under warranty.
• C) material cost of a piece of stock metal that has had too large a hole drilled in it.
• D) material cost of the paint applied to the case of a finished unit.

---

Definitions:

Make or Buy Decision

A decision-making process where a business evaluates the cost benefits of manufacturing a product in-house versus purchasing it from an external supplier.

Fixed Overhead

Costs that do not vary with production volume, such as rent, salaries, and insurance, required to operate a business regardless of production levels.

Variable Cost

Costs that change in proportion to the level of goods or services that a business produces.

Relevant Costs

Costs that are directly related to a specific management decision and that will change as a result of that decision.