Which cost category includes costs resulting from defects discovered after products have been delivered to customers?

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

Answer: (A)

Defects discovered after products have been delivered fall under external failure costs. These are the costs that arise when the customer encounters a defect and the failure is exposed outside the production environment, such as warranty reimbursements, product recalls, returns, field service, repairs, and related handling of customer complaints or loss of goodwill.

Internal failure costs occur when defects are found before delivery, like scrap, rework, and downtime in production. Appraisal costs cover detection activities to identify defects during the production process, such as inspections and testing. Prevention costs are spent to stop defects from happening in the first place, like training, quality planning, and process improvements.