A process costing system is used when a company mass produces a standardized product on a continuous basis. The production department becomes the cost center.

The costs of prevention and appraisal are conformance costs that serve as financial measures of internal performance. Prevention costs are incurred to prevent defective output. These costs include preventive maintenance, employee training, review of equipment design, and evaluation of suppliers. Appraisal costs are incurred to detect nonconforming output. They embrace such activities as statistical quality control programs, inspection, and testing. The equipment maintenance cost of US $1,154 is a prevention cost. The product testing cost of US $786 is an appraisal cost. Their sum is US $1,940.

Explanation/Reference: https://courses.lumenlearning.com/acctmgrs/chapter/5-3-the-contribution-margin-income- statement/#:~:text=The%20contribution%20margin%20represents%20sales,%2C%20the%20name%
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