Which cost category includes costs that go wrong before the product reaches the customer, including rework, scrap, downgrades, re-inspection, retest, and process losses?

• A. Internal failure costs
• B. External failure costs
• C. Appraisal costs
• D. Prevention costs

Answer: (A)

Internal failure costs are the expenses tied to defects that are found and addressed before the product reaches the customer. Rework, scrap, downgrades, re-inspection, retest, and process losses all occur during production as defects are detected and corrected or the item is discarded. Because the waste and corrective steps happen within the manufacturing process before shipment, they fall under internal failures. In contrast, appraisal costs are for inspecting to detect defects, prevention costs aim to stop defects from occurring, and external failure costs happen when defects are found after the product has been delivered to the customer.