Improving Quality Seems to Be a Strategic Weapon in Gaining

question 5

Multiple Choice

Improving quality seems to be a strategic weapon in gaining market share. However, improving quality entails allocation of resources and effort. As greater effort is expended to stop defects before they occur, which one of the following costs increases?

• A) prevention costs
• B) appraisal costs
• C) internal failure costs
• D) external failure costs

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Definitions:

Activity-Based Costing

A pricing strategy that attributes overhead and indirect expenses to associated goods and services by determining cost drivers.

Traditional Costing Method

An accounting approach that assigns manufacturing overhead costs to products based on volume-related measures such as direct labor hours or machine hours.

Activity-Based Costing

An accounting methodology that assigns costs to products or services based on the activities that go into producing them, aiming for more accurate allocation of overhead costs.

Traditional Costing Method

A method of accounting that assigns costs to products based on an average overhead rate. It tends to allocate indirect costs based on a single, volume-based cost driver.