Which cost category includes warranty claims and returns?

• A. External failure costs
• B. Prevention costs
• C. Appraisal costs
• D. Internal failure costs

Answer: (A)

When defects are discovered after the product has left the factory and reached the customer, the associated costs fall into the external failure category. Warranty claims, returns, and the related service or refunds are classic examples of these post-sale failures. They represent the costs a company incurs to rectify issues that customers experience, such as sending a replacement, processing a return, or covering repair under warranty. This contrasts with prevention costs (to prevent defects in the first place), appraisal costs (inspection and testing to catch defects), and internal failure costs (defects found before delivery, like scrap or rework).