ABC Insurance Agency incurred the following activity costs related to service quality. Identify those that are costs of conformance (CCF) and those that are costs of nonconformance (NC). Policy processing improvements                                   $76,400 Customer complaints response                                    34,100 Policy writer training                                                   12, 300 Policy error losses                                                      82,700 Policy proofing                                                            39,500 Solution CCF or costs of conformance are the costs of control. These costs include prevention costs i.e. costs that arise from efforts to keep defects from occuring at all and appraisal costs i.e. costs that arise from detecting defects vide audit. NC or costs of non-conformance are costs of failure control. These costs include internal failure costs i.e costs arising from defects caught internally and external failure costs i.e costs arising from defects reaching the customers. 1. Policy processing improvement cost of $76,400 is a prevention cost as it will prevent the defects from happening. So it is a CCF. 2. Customer complaints response cost of $34,100 is due to the actual complaints by customers. It is an external failure cost i.e NC. 3. Policy writer training cost of $12,300 is a prevention cost as it helps in workforce training and development. It is CCF. 4. Policy error losses is caused by internal failure (it is being assumed that the cost of $82,700 was due to policy error and the error was caught internally). So its NC. 5. Policy proofing cost of $39,500 is a prevention cost as it will help policy verification by proofing. So its CCF. .

1. ABC Insurance Agency incurred the following activity costs related to service quality. Identify
those that are costs of conformance (CCF) and those that are costs of nonconformance (NC).
Policy processing
improvements                                 Â
$76,400
Customer complaints
response                                 Â
34,100
Policy writer
training                                    Â
             12, 300
Policy error
losses                                    Â
                82,700
Policy
proofing                                   Â
                      39,500
Solution
CCF or costs of conformance are the costs of control. These costs include prevention costs i.e.
costs that arise from efforts to keep defects from occuring at all and appraisal costs i.e. costs that
arise from detecting defects vide audit.
NC or costs of non-conformance are costs of failure control. These costs include internal failure
costs i.e costs arising from defects caught internally and external failure costs i.e costs arising
from defects reaching the customers.
1. Policy processing improvement cost of $76,400 is a prevention cost as it will prevent the
defects from happening. So it is a CCF.

2. 2. Customer complaints response cost of $34,100 is due to the actual complaints by customers. It
is an external failure cost i.e NC.
3. Policy writer training cost of $12,300 is a prevention cost as it helps in workforce training and
development. It is CCF.
4. Policy error losses is caused by internal failure (it is being assumed that the cost of $82,700
was due to policy error and the error was caught internally). So its NC.
5. Policy proofing cost of $39,500 is a prevention cost as it will help policy verification by
proofing. So its CCF.