Definition: Quality costs are the all the costs that a manufacturer incurs to ensure it produces a quality product. Quality costs include both costs to prevent low-quality production and costs that arise after a low quality product is produced.
What Does Quality Cost Mean?
All manufacturers spend time and resources trying to produce the highest quality products at the lowest prices. Some manufacturers, like Apple, take pride in their reputation and spend great amounts of money to make sure their products are of the highest quality.
Some good examples of prevention quality costs are engineering and quality training. Design and production engineers work together to make sure products are manufactured to withstand normal use. Employees are trained on production processes to help eliminate manufacturing malfunctions like machine errors.
If a product is produced with a defect, it is up to the inspection team and product testing team to find the defective product. Quality control inspections are an example of appraisal quality costs after a product is produced.
Quality costs also include two other categories: internal failure costs and external failure costs. Internal failure costs focus on tangible costs of a defective product before it is shipped. A good example is the costs occur when a defective product is produced and can’t be reworked.
This results in higher scrap, waste, and spoilage costs. External quality costs, on the other hand, focus on both the tangible and intangible costs of shipping defective products to customers. Not only will the company have extra customer support and warranty costs, it will also have quality reputation and market share consequences to deal with.