QHT1 TASK 1 The three types of quality cost PDF

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A description of the three different types of cost associated with quality that a company must prepare for if they have a defective product....

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Business Management Tasks: Task 1 Course Code: QHT1

Three Types of Costs It is essential to include the following three costs for quality assurance during production. A. Prevention costs B. Appraisal costs C. Failure costs which include internal and external failure costs

The Three Types of Costs Explained with Examples Prevention costs are costs that the company acquires to prevent defects in the quality of the product. An example of a preventive cost is investing in a training program. Providing proper training for employees is a great way to prevent mistakes in production that could lead to even more costly defects. A few costs to consider for a training program include wages paid to the trainer, the cost of equipment needed for training, and possible downtime costs for the employees to attend the training. Appraisal costs are costs that are associated with ensuring that your product meets quality standards. Regular inspections of equipment and testing the product are both examples of appraisal costs. Performing equipment inspections is critical to maintaining that equipment is in proper working condition. Equipment that does not work correctly can lead to a decline in product quality. To help ensure that you produce a product that meets quality standards, it is vital to test your product regularly. Testing the product at regular intervals will help maintain quality by uncovering quality issues to make the necessary corrections. Production downtime and the costs of the tests are both examples of the costs related to performing equipment inspections and quality assurance tests. Failure costs, including internal and external, are costs that a company endures when its product is defective. Internal costs are associated with a defective product before distribution, whereas; external costs occur after distribution to the customer. Rework of the product is an example of an internal failure cost. If an error is discovered in the material or during the manufacturing process, it is essential to correct it. There will be an avoidable cost to the company to fix the problem. The cost associated with addressing the reworking of the product

could be the cost of replacing the materials used. Producing a defective product also leads to scrapped materials which can be costly because scrap is a waste of materials needed for production. External failure costs can be detrimental to a company as well. The company's reputation is at risk if the discovery of a defect becomes evident after distribution. An example of an external failure cost is the cost of lost sales. The company could lose its customers if they decide to purchase from another company due to the failure in quality resulting in a loss in revenue.

Trade-Offs Each type of cost comes with a trade-off to consider. For example, the potential trade-off for implementing a training program as a prevention cost would be the cost of the training. Although training will initially cost money and time, the benefit of training will far outweigh the financial cost. Employees will know how to avoid quality mistakes during production because of the knowledge gained during the training. Secondly, the appraisal cost trade-off for the cost of equipment inspections and product testing would be improved machines and better quality of products. Ensuring that the machines are properly maintained will decrease production errors, thus improving product quality and reducing the cost of producing a defective product. Maintaining proper quality assurance by regularly performing quality tests increases quality and productivity by correcting defects in the early production phase. A trade-off that is well worth the investment because it prevents a potential external failure cost. The overall goal is to prevent any internal or external failure costs. The cost of materials used to rework a product must be considered while mitigating an internal failure cost. The trade-off of the rework cost is preferable over the cost of losing your customers. If the product is not reworked internally, it will lead to an external failure. The trade-off to an external failure would more than likely be a loss of revenue. The customers do not want to buy a defective product and would go elsewhere. The trade-offs mentioned above for the quality costs are an investment every company should make to prevent a defective product that can ultimately be detrimental to a company, resulting in a loss of profit.

References Broughton, R. (2021) “Quality Assurance Solutions Spreading the QA Word” https://www.quality-assurance-solutions.com/

Stevenson, W. J. (2017). Operations Management (13th Edition). McGraw-Hill Higher Education (US). https://wgu.vitalsource.com/books/9781259948268...