Question

"There is a cost attached to providing quality products. These costs consist of prevention costs, appraisal cost, internal failure costs and external failure costs." Discuss the Statement.

Answer 1

Answer:

"There is a cost attached to providing quality products. These costs consist of prevention costs, appraisal cost, internal failure costs and external failure costs."

Quality is the most important element now-a-days. It is not necessary to use very expensive materials to produce a quality product. Quality cost generally refers to the costs associated with preventing, detecting and removing bottlenecks or defects from the products. The costs related with quality are classified into 4 major types. They are as follows:

1. Prevention costs
2. Appraisal costs
3. Internal failure costs and
4. External failure costs.

Types of quality costs are explained in brief below:

Prevention costs:

“Prevention is better than Cure”. As per this saying, you should always try to prevent problems or defects rather than fixing that later on. Costs to avoid or reduce the number of defects at the first time or at the initial or first stage are called prevention costs.

Examples: Improving production process, providing training to workers, application of statistical control procedures, etc.

Appraisal costs:

Appraisal costs (also called as inspection costs) are the costs associated with identification of defective products before shipping them to the customers. All costs connected with the activities performed during production process to make sure requisite standards of quality are also a part of appraisal.

Examples: Inspection of raw materials purchased.

Internal failure costs:

Internal failure costs are costs involved in removing defects from the products before shipment to customers.

Examples: Cost of second-hand work, cost of rejected products, scrape cost, etc.

External failure costs:

An external failure costs occur when defective products have been shipped to customers. Delivery of defective products can disappoint customers, harm goodwill and therefore decreases sales and profits.

Examples: Guarantee and warranty costs, cost of replacement, payment of damages aroused because of defective product, etc.