Aquality control activity analysis indicated the following four activity costs of an administrative department:

redesigning a form to reduce errors: $15,000
responding to customer complaints: 75,000
verifying the accuracy of a form: 30,000
correcting errors in forms: 60,000
total: $180,000
if sales are $3,000,000, what percentage of total sales are the internal failure costs?

a.1.0%
b.3.0%
c.33.3%
d.2.0%

total sales are the internal failure costs is 2%

Explanation:

given data

form to reduce errors =  $15,000

customer complaints = 75,000

Verifying = 30,000

Correcting errors = 60,000

Total = $180,000

sales = $3,000,000

to find out

total sales are the internal failure costs

solution

we know here that internal failture cost is express as

internal failture cost  = correcting error in form   ...........1

internal failture cost  =  $60000

and

internal failture cost as % of total cost is here as

internal failture cost to sale =   .......2

internal failture cost to sale =

internal failture cost to sale = 2%

so total sales are the internal failure costs is 2%

The cost of capital for the firm is 12.75%

Explanation:

from the CAMP model we can determinatethe rate as follow:

risk free0.044

premium market = (market rate - risk free) = 0.07

beta(non diversifiable risk) = 1.4

Ke0.14200 = 14.2%

from the dividend grow model:

D0 = 1.60

D1D0 x (1+g) 1.60 dollars x 1.06 = 1.696

P$ 32

g0.06

Ke0.113 = 11.3%

we can do an average betwene the two methods:

(14.2 + 11.3)/2 = 12.75