Define Failure costs and give examples of internal Failure costs

Failure costs are costs that result from producing defective products.

Examples of internal Failure costs
- Cost of investigation:- Includes the cost of all activities
Inventory safety stocks: Costs of extra safety stocks held specifically to guard against
shortages and breakdowns due to making defective products.
- Excess capacity cost: Cost of excess capacity that must be maintained to make up for
capacity cost from making defective products. This include the cost of extra facilities and
equipments above those that would be needed if production were defect free .
Downtime: This is the cost of idle personnel and facilities when production is halted to
correct a quality problem, including stoppages due to defects materials.
- Scrap: These are defective products which cannot be repaired, used or sold
- Reworked or rectification: It involves the cost of correcting non-conforming unit such as
additional manufacturing operations.
- Cost of re-inspection: Reworked items may require re-inspection or retesting to ensure
compliance to quality standards.
- Downgrading costs: Products which do not meet specification may be sold at a discount
price or as second hand at throw away prices.
- Waste: The activities associated with doing unnecessary work or holding stocks as the
result of errors, wrong materials among others.

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NatalieR answered the question on May 9, 2022 at 09:33