COQ – consists of following to achieve its prime objective and purpose.
- Appraisal costs
Appraisal costs (also known as inspection costs) are those cost that are incurred to identify defective products before they are shipped to customers. All costs associated with the activities that are performed during manufacturing processes to ensure required quality standards are also included in this category.
- Internal failure costs
Internal failure costs are those costs that are incurred to remove defects from the products before shipping them to customers. Examples of internal failure costs include cost of rework, rejected products, scrap etc.
- External failure costs
If defective products have been shipped to customers, external failure costs arise. External failure costs include warranties, replacements, lost sales because of bad reputation, payment for damages arising from the use of defective products etc. The shipment of defective products can dissatisfy customers, damage goodwill, and reduce sales and profits.