Multiple Choice
Which of the following is NOT a true statement about fraud?
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6. Internal Controls and Reporting Cash
Fraud and the Fraud Triangle
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Which of the following is an example of an internal failure cost?
A
Costs incurred to rework defective products before they are shipped to customers
B
Costs of training employees to prevent errors
C
Costs of warranty repairs for products returned by customers
D
Costs of external audits to detect fraud
Verified step by step guidance1
Understand the concept of internal failure costs: These are costs incurred when a product or service fails to meet quality standards before it is delivered to the customer. They occur within the organization and are related to correcting defects or errors.
Analyze each option provided in the question to determine whether it fits the definition of internal failure costs.
Option 1: 'Costs incurred to rework defective products before they are shipped to customers' - This fits the definition of internal failure costs because the defective products are identified and corrected internally before delivery.
Option 2: 'Costs of training employees to prevent errors' - This is a preventive cost, not an internal failure cost, as it is aimed at avoiding defects rather than addressing them after they occur.
Option 3: 'Costs of warranty repairs for products returned by customers' and Option 4: 'Costs of external audits to detect fraud' - These are external failure costs and appraisal costs, respectively, and do not fall under internal failure costs.
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