Quality Costs and its Types

Quality Costs and its Types

Business Memo

Company XYZ,

Address, Zip Code

Dated: 3rd March.2012.

Dear Supervisor,

The success and prosperity of any business depend on the efforts of its leadership. The top management of any firm traces the performance of all the units that are working within the organization. Each department plays its particular role. Similarly, the Quality Management department has its own contribution. Economists have studied that quality costs are important costs to the organization. The excessive quality costs are harmful to the reputation of the business as they reduce the revenues drastically. There are different types of quality costs and each cost has its own impact on profitability.

The quality of a product is basically the reliability and manufacturing of a product; that how well it has been produced. A product that caters the requirements and meets its designed specifications is a quality product. There are some defects and faults with them. Quality costs are the costs that are associated with the prevention, detection and dealing of these faults and the defects.

Types of Quality Costs

Appraisal Costs (Inspection)

Appraisal costs are also called as' inspection costs'. These are the costs that are related to the identification of defective products. The defective products are caught before they get to the customer's hand during the production process.

Example: Test and examination of received materials, test and check of in-process goods, final product testing and inspection and depreciation of test apparatus are examples of appraisal costs. These costs occur when faulty goods are identified.

Prevention Costs

It is more effective to prevent the defects from happening. When there are no or at least less defects, the appraisal costs will not be more. Therefore, the prevention costs are the costs that emphasize on preventing the faulty products. Companies implement some techniques to ensure the deterrence of faulty goods. They also contribute in activities like quality circles and statistical process control.

Example : Systems Expansion, Quality Manufacturing, Quality Education, Supervision ...