Costs of Quality: Major Categories

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1. Costs of Quality:
There are four major categories:
1.Prevention costs are associated with preventing defects before they happen (need additional time, effort, and money). Companies employ many techniques to prevent defects for example statistical process control, quality engineering, training, and a variety of tools from total quality management (TQM). 2.Appraisal costs (Inspection costs) are incurred when the firm assesses the performance level of its processes 3.Internal failure costs result from defects that are discovered during the production of a service or product. Defects fall into two main categories: rework and scrap (unfit for further processing) 4.External failure costs arise when a defect is discovered after the customer receives the service or product. External failure costs include warranty service and litigation costs, repairs and replacements, product recalls EXAMPLE

Prevention Costs
Systems development
Quality engineering
Quality training
Quality circles
Statistical process control
Supervision of prevention activities
Quality data gathering, analysis, and reporting
Quality improvement projects
Technical support provided to suppliers
Audits of the effectiveness of the quality system

Appraisal Costs
Test and inspection of incoming materials
Test and inspection of in-process goods
Final product testing and inspection
Supplies used in testing and inspection
Supervision of testing and inspection activities
Depreciation of test equipment
Maintenance of test equipment
Plant utilities in the inspection area
Field testing and appraisal at customer site

Internal failure costs
Net cost of scrap
Net cost of spoilage
Rework labor and overhead
Re-inspection of reworked products
Retesting of reworked products
Downtime caused by quality problems
Disposal of defective products
Analysis of the cause of defects in production
Re-entering data because of keying errors
Debugging software errors

External failure...
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