The Quality Manager for Frozen Pizzas, Inc

question 20

Multiple Choice

The quality manager for Frozen Pizzas, Inc., is concerned about the quality of the lot of several thousand pizzas which his company produced this week, and is now ready to ship. If the cost of replacing a defective pizza once it has been shipped is $5.00, while the cost of complete (100 percent) inspection prior to shipment is $.30 per pizza, what is the point of indifference between complete inspection and shipment without inspection?

• A) 1.67 percent defectives
• B) 3 percent defectives
• C) 5 percent defectives
• D) 6 percent defectives
• E) 16.7 percent defectives

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Definitions:

Equivalent Units

In cost accounting, this is a metric that represents the work accomplished by unfinished units as if they were fully completed units.

Conversion Costs

Conversion costs are the expenses incurred to convert raw materials into finished goods, typically including labor and overhead costs.

Process Costing

An accounting methodology used for assigning production costs to units of output, particularly suitable for continuous production processes.

Cost Per Equivalent Unit

The total production cost divided by the number of equivalent units produced, used to assign costs in process costing.