Multiple Choice
Which of the following is considered a manufacturing inventory item?
3
views
4. Merchandising Operations
Cost of Goods Sold - Perpetual Inventory vs. Periodic Inventory
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In the context of cost accounting, the cost of quality has been estimated at what percentage of every sales dollar?
A
50% to 60%
B
70% to 80%
C
1% to 5%
D
20% to 30%
Verified step by step guidance1
Understand the concept of 'Cost of Quality' in cost accounting, which refers to the total cost incurred to ensure that a product or service meets quality standards. This includes prevention costs, appraisal costs, and costs related to internal and external failures.
Recognize that the cost of quality is often expressed as a percentage of sales revenue to provide a clear measure of its impact on profitability.
Review industry benchmarks and studies that estimate the cost of quality. These studies typically show that the cost of quality ranges between 20% to 30% of every sales dollar, depending on the organization's efficiency and quality management practices.
Compare the given options (50%-60%, 70%-80%, 1%-5%, and 20%-30%) to identify the range that aligns with the industry standard for the cost of quality.
Conclude that the correct answer is 20% to 30%, as this range is consistent with the typical estimates for the cost of quality in cost accounting.
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