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Azure Company uses the multiplier method to estimate hidden quality costs. The multiplier is determined to be 3, based on experience. Accounting records show that the measured external failure costs are $330,000. Which of the following is the total external failure cost?
a. $110,000b. $330,000c. $339,900d. $990,000

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Answer:

d. $990,000

Explanation:

The multiplier method assumes that the total external failure cost is a multiple of the measured external failure costs. In this case, based on experience, the company determined that the measured value must be multiplied by a factor of 3:

[tex]C=3* \$330,000\\C= \$990,000[/tex]

Therefore, Azure Company's total external failure cost is $990,000

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