[Vanessachy]

As part of a benchmarking process, a company’s costs of quality for the current month have been identified as follows:

Employee training $20,000

Product recalls 8,000

Scrap 4,500

Quality inspectors 48,000

Preventive maintenance 19,500

Supplier education expense 17,500

Materials inspection expense 60,000

Processing product returns 2,500

What amount is the company’s prevention cost for the current month?

A. $39,500

B. $57,000

Incorrect C. $165,000

D. $175,500

here is the explanation, I understand that we shouldn’t include quality inspection, but why it didn’t include the inspection expense of 60000? In Becker book, it says inspection expense is part of the prevention.

Prevention costs are the costs of production process changes that reduce the rate at which product defects occur. This category includes employee training ($20,000), preventative maintenance ($19,500), and supplier education ($17,500).

The cost of quality inspectors is an inspection cost that identifies a defect but does not prevent it. Internal failure costs include reworking or scrapping defective products that are identified by the inspection process. External failure costs include warranty and repair expenses and product recalls.

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Dage]

The most basic way to think about this is by thinking of an inspection cost as a detection cost. The inspection won't necessarily prevent an issue with product manufacturing but it will detect an issue.

FAR: 90 October 2015
REG: 89 January 2016
AUD: 94 April 2016
BEC: 86 May 2016

Ethics: 93

Wiley CPAexcel
NINJA MCQ

[Vanessachy]

I agree then I shouldn't add any inspection expense? Then the book is wrong

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[tuanxn]

I remember being confused about this when I first came across it.

The “inspection costs” that the Becker book talks about is inspection costs for machinery and equipment. We're inspecting the machinery to ensure it's properly maintained so that we prevent future defects.

The inspection cost your problem is referring to are material/product inspections, so that makes it a detection of defective goods.

It really comes down to what is being inspected. If it's machinery/equipment, then it's preventive. If it's material/goods/product, then it's detective.

[Vanessachy]

@tuanxn, omg, thank you, it makes a lot more sense now.

Far 10/26/2015, 64, 1/4/2016, 82
Reg 7/10/2015, 60, 2/27/2016, 86
Aud, 5/9/2016, 74 (ouch), 7/26/2016, I cannot wait to take this test again
Bec, 6/10/2016, 70,9/8 retake

[Author]

Replies