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Nov 19 2012

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Types of Cost of Quality

Cost of quality refers to all of the costs associated with making and ensuring high quality finished products. A company may have a product with a high quality and strong brand image that uses superior raw materials along with high quality. But when it produces defective products during the production process, the company has to incur more warranty and repairing costs that will ultimately dissatisfied customers and they may switch to other products. Therefore in order to ensure quality products companies have to incur some costs and these costs may be as follows:

Prevention Costs: Prevention costs incurred to reduce the number of defectives products. Companies employ different kinds of techniques for producing high quality finished products. prevention costs may be of following types.

  • Prevention costs may be as followscost of quality, types of cost of quality, prevention cost, appraisal cost
  • Systems development program
  • Industrial engineering
  • Quality training for workers
  • Statistical process control
  • Production supervision and monitoring activities
  • Quality improvement process
  • Quality products audit

Appraisal Costs: Appraisal costs comprise all costs that incur testing and inspection of finished products. The detection of defective finished products should be detected as early as possible in the manufacturing process.  Appraisal costs are sometimes called inspection costs and are incurred to identify defective finished products before the products are displayed to customers. Employees are increasingly responsible for their own quality concern in order to ensure less defective products. For example

  • Inspection of incoming materials
  • Inspection of work in process production
  • Finished products testing and inspection
  • Regular maintenance of production equipment
  • Plant and machineries inspection

Internal Failure Costs: The costs resulting from products or services not conforming to requirements or customer and user needs. This costs usually arise when finished products are going to ship to customers. Failure costs are divided into internal and external failure categories. Internal failure costs may be following types for example:

  • Net cost of scrap materials
  • Net cost of spoilage materials
  • Reworking overhead cost
  • Cost of disposal of defective products
  • Cost of retesting of defectives products

External Failure Costs: external cost is just opposite of internal cost. External costs occur when finished products are returned from customers that have been already shipped to customers. This kind of quality costs reduces the profit significantly as it is associated with warranty and replacement costs. For example

  • Warranty and replacement costs
  • Finished products recall for further improvement
  • Warranty arising from defective products
  • Returns of the products arising from quality problem

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