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IIA IIA-CIA-Part3 Exam Actual Questions
Certified Internal Auditor - Part 3, Business Analysis and Information Technology (Page 35 )

Updated On: 19-Jul-2026
Page 35 of 312
PDF with 1555 Questions

Quality costing is similar in service and manufacturing organizations. Nevertheless, the differences between these organizations have certain implications for quality management.
Thus,

  1. Direct labor costs are usually a higher percentage of total costs in manufacturing organizations.
  2. External failure costs are relatively greater in service organizations.
  3. Quality improvements resulting in more efficient use of labor time are more likely to be accepted by employees in service organizations.
  4. Poor service is less likely to result in loss of customers than a faulty product.

Answer(s): B

Explanation:

External failure costs arise when problems occur after delivery. They occur because products or services are nonconforming or otherwise do not satisfy customers. External failure costs in service enterprises are even more important than in manufacturing environments. Faulty goods sometimes may be reworked or replaced to a customer's satisfaction, but poor service tends to result in a loss of customers.



An organization has adopted the robust quality approach. According to this view of quality,

  1. The minimum point on the total quality cost curve occurs when conformance cost per unit equals nonconformance cost per unit.
  2. Improving quality requires tradeoffs among categories of quality costs.
  3. Beyond some point, incurrence of prevention and appraisal costs is not cost beneficial
  4. Costs in all categories of quality costs may be reduced while improving quality.

Answer(s): D

Explanation:

The optimal level of quality costs traditionally has been deemed to occur where the conformance cost curve intercepts the nonconformance cast curve, which corresponds to the minimum point on the total cost curve. Thus, beyond some point, incurrence of prevention and appraisal costs is not cost beneficial. However, the modern robust quality view is that this relationship does not always hold. Improving quality and reducing costs in each category may be possible if the most efficient prevention methods are applied. For example, selection of a supplier meeting high quality standards regarding defect rates and delivery times may drive dawn not only failure casts but also the prevention and appraisal casts incurred when supplier performance was less reliable. Thus, conformance casts do not have to continue to increase to obtain additional reductions in nonconformance casts.



Management of a company is attempting to build a reputation as a world-class manufacturer of quality products.
Which of the following measures would not be used by the firm to measure quality?

  1. The percentage of shipments returned by customers because of poor quality.
  2. The number of parts shipped per day.
  3. The number of defective parts per million.
  4. The percentage of products passing quality tests the first time.

Answer(s): B

Explanation:

The number of parts shipped per day would most likely be used as a measure of the effectiveness and efficiency of shipping procedures, not the quality of the product. This measure does not consider how many of the parts are defective.



In Year 2, a manufacturing company instituted a total quality management TQM) program producing the following report:


On the basis of this report, which one of the fallowing statements is most likely true?

  1. An increase in conformance costs resulted in a higher quality product and therefore resulted in a decrease in nonconformance costs.
  2. An increase in inspection costs was solely responsible for the decrease in quality costs.
  3. Quality costs, such as scrap and rework, decreased by 48°/O.
  4. Quality costs, such as returns and repairs under warranty, decreased by 40°l°.

Answer(s): A

Explanation:

TQM emphasizes the supplier's relationship with the customer and recognizes that everyone in a process is at some time a customer or supplier of someone else, either within or outside the organization. The costs of quality include costs of conformance and costs of nonconformance. Casts of conformance include prevention costs and appraisal inspection) costs. Nonconformance costs are composed of internal failure costs and external failure costs, such as lost opportunity. Conformance costs prevention and appraisal) increased substantially, whereas the nonconformance casts internal and external failure) decreased.
Hence, the increase in conformance casts resulted in a higher-quality product.



Quality cost indices are often used to measure and analyze the cost of maintaining a given level of quality. One example of a quality cost index, which uses a direct labor base, is computed as
Based upon these costs data, the quality cost index:

  1. Decreased four points from May to June.
  2. Vas unchanged from May to June.
  3. Increased 10 points from May to June.
  4. Decreased 10 points from May to June.

Answer(s): A

Explanation:

The index for May was [US $4,000 + $6,000 + $12,000 + $14,000) ­ $90,000], and the index for June was 6% [US $5,000 + $5,000 + $15,000 + $-11,000) ­ $100,000].



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