Question

Stegall, Inc. manufactures motor scooters. For each of the following examples of quality costs, indicate which of the following quality cost categories each example represents: prevention costs, appraisal costs, internal failure costs, or external failure costs.

1. Preventive maintenance on machinery

2. Direct materials, direct labor, and manufacturing overhead incurred to rework a defective scooter that is detected in-house through inspection

3. Lost profits from lost sales if the company’s reputation is hurt because customers previously purchased a poor-quality scooter

4. Cost of inspecting raw materials, such as chassis and wheels

5. Working with suppliers to achieve on-time delivery of defect-free raw materials

6. Cost of warranty repairs on a scooter that malfunctions at a customer’s location

7. Costs of testing durability of vinyl

8. Cost to reinspect reworked scooters

Short answer

S.No.	Cost Type
1.	Prevention Cost
2.	Internal failure cost
3.	External failure cost
4.	Appraisal cost
5.	Prevention Cost
6.	External failure cost
7.	Appraisal cost
8.	Appraisal cost

Step-by-step solution

Prevention Cost

Prevention cost is incurred to avoid any future quality failure regarding goods or services. From the given list following are the prevention costs –

1.Preventive maintenance on machinery.

5. Working with suppliers to achieve on-time delivery of defect-free raw materials

Appraisal cost

Appraisal cost is the cost to detect the poor quality of materials, goods, or services. From the given list following are the appraisal cost –

4. Cost of inspecting raw materials, such as chassis and wheels.

7. Costs of testing durability of vinyl.

8. Cost to reinspect reworked scooters.

Internal failure cost

Internal failure cost is incurred when poor-quality goods are corrected before delivery. Following are the internal failure cost from the given list –

2. Direct materials, direct labor, and manufacturing overhead incurred to rework a defective scooter that is detected in-house through inspection.

External failure cost

External failure cost is related to the after delivery of goods or services. These cost are incurred to make the customer compensate for the poor quality of goods or services. From the given list following are the external failure cost –

3. Lost profits from lost sales if the company’s reputation is hurt because customers previously purchased a poor-quality scooter.

6. Cost of warranty repairs on a scooter that malfunctions at a customer’s location