Quality
accounting: an example on external failure costs:
Due to the
recently occurrence of production problem, complaints on defective products have
been made by some customers. The company reckons that sales quantity of the
product involved will drop by 1,000 units per annum. The contribution margin per
unit of the product is $200. What is the opportunity cost of the external
failure costs in this case?
Answer:
1,000 units x $200 per unit = $200,000
per annum.
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