Which cost category includes costs arising from defects detected during production or before delivery?

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

Answer: (A)

Defects discovered during production are considered internal failure costs because the failure is found inside the production process before the product reaches the customer. These costs arise from defects that require rework, scrap, or downtime while the item is still in-house, rather than after delivery. Examples include discarded material, reprocessing, re-inspection, testing, and lost production time due to quality issues.

External failure costs, by contrast, occur after delivery (warranty, returns, field service, recalls). Appraisal costs are the costs of inspecting and testing to detect defects, and prevention costs are expenses aimed at stopping defects from occurring in the first place (training, process improvement, supplier quality programs).