Which quality cost category includes formal evaluation and audits of quality within the firm?

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

Answer: (B)

Quality costs are grouped into four categories to capture where quality-related dollars go. Appraisal costs cover activities that determine whether quality requirements are being met, essentially measuring and evaluating quality to catch problems before they reach the customer. Formal evaluation and audits inside the firm fit this category because they are deliberate checks—inspections, testing, quality audits, and calibration activities—that verify conformance to standards and help identify defects or process issues early. These costs are focused on detecting quality issues rather than preventing them or fixing them after they occur.

Prevention costs are about stopping defects from happening in the first place (training, process improvement, quality planning, capability studies). Internal failure costs arise when defects are found during production (rework, scrap, reinspection). External failure costs occur after the product has reached the customer (warranty claims, returns, recalls).