CPIM Practice Exam 2025 – The All-In-One Guide to Achieving Exam Success!

The costs associated with providing poor-quality products or services are known as quality costs. This term encompasses all expenses related to ensuring products meet quality standards and those incurred when quality falls short.

Quality costs are generally classified into four main categories: prevention costs, appraisal costs, internal failure costs, and external failure costs. Each category highlights different aspects of quality management, but the overarching concept of quality costs reflects the financial impact that poor-quality outputs can have on a business's bottom line.

For instance, prevention costs include expenses related to activities aimed at preventing defects, such as training or process improvement initiatives. Appraisal costs cover the expenses of evaluating and inspecting products to ensure they meet quality standards. Internal failure costs arise from defects found before products reach the customer, such as rework or scrap. External failure costs, on the other hand, are incurred when defective products are delivered to customers, leading to returns, repairs, or loss of customer trust.

While each of these categories is integral to understanding the overall implications of quality, the term "quality costs" encompasses all of these factors collectively as they relate to the financial ramifications of delivering poor-quality products or services.