Lost production time, scrap, and rework are examples of _ .
a. ?prevention costs
b. ?replacement costs
c. ?appraisal costs
d. ?external failure costs
e. ?internal failure costs
The correct answer and explanation is:
The correct answer is e. internal failure costs.
Explanation:
Internal failure costs refer to the costs incurred when defects are found before the product is delivered to the customer. These costs arise when a company detects issues with a product during its production process but before it reaches the customer. They are related to inefficiencies that occur within the organization, such as defects that lead to wasted resources or the need for rework.
In this context, the examples provided — lost production time, scrap, and rework — are all characteristic of internal failure costs.
- Lost production time: This happens when the production process is interrupted or slowed down due to quality issues. It could be caused by machine breakdowns, faulty materials, or defective products that need to be discarded. The company incurs costs related to the downtime of machinery, labor costs while work is stopped, and delays in production schedules.
- Scrap: Scrap is the term used for material or products that are produced but cannot be used or sold because they are defective. The cost of scrap includes the raw material costs, labor costs, and overhead associated with producing these defective items. Since these items cannot be sold or used in further production, they represent an internal failure.
- Rework: Rework refers to the cost of fixing defective products so that they meet the required specifications or quality standards. This process usually involves labor and material costs to correct the issues. Rework increases the overall production cost and extends the time to complete the product.
These costs represent inefficiencies within the production process, and therefore, they are classified as internal failure costs. These costs are incurred when a company fails to meet its quality standards during production and must spend additional resources to fix the problems before the product reaches the customer.
In contrast, external failure costs are incurred after the product reaches the customer, such as warranty claims or customer returns. Prevention costs and appraisal costs are related to activities designed to avoid defects or assess quality before production, but they are not failures themselves.