Certified Production & Operations Manager (POM) Practice Exam

Which of the following is considered an internal failure cost?

1. Rework cost

2. Market research cost

3. Inspection cost

4. Training cost

The correct answer is: Rework cost

Rework cost is categorized as an internal failure cost because it arises from deficiencies in the product or service that occur before it is delivered to the customer. This type of cost reflects the resources spent on correcting defects found during the production process, which could include labor, materials, and overhead used to remedy the issues. Internal failure costs are critical to manage, as they represent a waste of resources that could have been avoided had the error been corrected earlier in the production process. By focusing on reducing rework costs, an organization can improve its efficiency, quality, and ultimately profitability. In contrast, market research costs are related to gathering information before a product launch, and inspection costs are associated with evaluating products to ensure they meet quality standards; both are preventive in nature. Training costs are investments in employee development which are aimed at improving overall performance and preventing failures, rather than costs incurred due to failures that have already occurred. Therefore, these costs do not fall under the category of internal failure costs.