Student: John Loyd
Student ID: 000329013
Course: QHT1 Business Management Tasks
Task 1
Cost Quality Relationship
Product production comes with many types of costs. Four of the most common costs are prevention costs, appraisal costs, internal failure costs and external failure costs. These four costs are called quality costs and are costs that all businesses that produce products will pay. The amount of money that will go to each cost is dependent on the amount spent on the other costs. In other words, an increase in one type of cost can result in a decrease in another. Businesses need to understand the nature of each cost in order to understand for which cost to budget.
The first type of cost is prevention costs. Prevention…show more content… The first type of failure cost is internal failure costs. Those happen when the product is made in massive quantities but for some reason cannot even be shipped out to the public. Sometimes the products have to be completed scrapped and sometimes the cost involves going back and fixing the defective part of the product.
Internal failure costs are devastating but even more harmful to a company is the cost associated with external failures. External failure costs are the costs that happen when the product is discovered faulty after customers have it. This can involve recalls and having to pay for injuries or losses that a customer suffered due to the malfunction of the product. External failure costs even extend past the initial costs that occur. A company that makes a product that causes death will take a long time to recover from the loss of sales in all products. A trade off associated with this cost is, frankly, the company’s reputation and the market’s willingness to ever purchase from them again. Without paying the costs associated with “making it right”, a company may never recover any market share.
Each of these costs are expensive. However, certain of the costs are preferable to others. If more money is spent on prevention and appraisal costs, less will need to be spent in internal and external failure costs. Failure costs are higher in the long run than prevention and appraisal costs. For instance, a company that spends the time and
