External failure costs include
A) Scrap
B) Litigation costs resulting from product liability issues
C) Rework
D) Quality inspections
E) Employee training

Question

Quizplus · Accepted Answer

External failure costs refer to costs that are incurred after the product or service has been delivered to the customer. Litigation costs resulting from product liability issues are one of the most significant external failure costs that a company can face. This can include the costs of lawsuits, settlements, and damages that must be paid to customers who have been harmed by a defective product. Therefore, option B is the correct choice.

Scrap (option A) and rework (option C) are examples of internal failure costs, which are costs that are incurred before the product or service is delivered to the customer. Quality inspections (option D) and employee training (option E) are examples of prevention costs, which are costs that are incurred in order to prevent defects from occurring in the first place.

External Failure Costs Include