Which of the following would be classified as an internal failure cost on a quality cost report?

Which of the following would be classified as an internal failure cost on a quality cost report?

A) Rework labor and overhead.

B) Cost of field servicing and handling complaints.

C) Technical support provided to suppliers.

D) Lost sales arising from a reputation for poor quality.

Answer: A. Rework labor and overhead.

Quality costs are typically categorized into four main types: cost of prevention, appraisal costs, internal failure costs and external failure

Internal failure costs result from defects that are found before the product is delivered to a customer. Some of them are product reworking costs, cost for scrapping defective units, material waste and labor and overheads associated with the process of diagnosis and repairing quality issues.

Rework labor and overhead simply means the additional work time along with facility cost involved in redoing products that failed to meet internal quality standards. Since this cost occurs before external shipment, it would appear on a quality cost report as an internal failure.

The other alternatives represent external failure costs (B and D) or prevention costs (C). External failure costs are experienced beyond the point of shipment where customers finds quality problems. Add costs for activities that prevent defects .

In brief, rework labor and overhead is an internal failure cost as it represents the activity of correcting quality defects before the customer receives a product. The tracking of internal failure also contributes to quantifying the repercussions presented by quality problems found during production.