Question

Describe the difference between external and internal failure costs

Answer 1

Failure costs are those incurred by a manufacturer when it produces defective goods. There are two types of failure costs, which are internal and external.

DIFFERENCE TABLE

BASIS	EXTERNAL FAILURE COSTS	INTERNAL FAILURE COSTS
1.Point of occurance	External failure costs occur after the goods have been dispatched to the customer.	Internal failure costs occur before the goods have been dispatched to the customer.
2.Scope of improvement	These costs lead to dissatisfaction of the customers as the product shipped failed to conform to quality requirements.	They would have otherwise led to the customer not being satisfied, had they not been identified before shipment. They have a scope for improvement.
3. Examples of costs included	It includes warranties, repairs, recalls, legal actions and lost sales.	It include costs of rework, scrapping of rejected products and downtime caused by quality problems.
4. Quantification of costs	They take place after the sales and are generally difficult to quantify.	They take place during the production process and are arguably the easiest to quantify.