CPIM Practice Exam

What do external failure costs typically include?

1. Training and implementation assistance

2. Warranty and return costs

3. Preventive maintenance costs

4. Quality control measures

The correct answer is: Warranty and return costs

External failure costs are expenses that occur when a product or service fails to meet quality standards after it has been delivered to the customer. These costs are directly associated with the negative consequences of such failures, impacting the organization and its relationship with the customer. Warranty and return costs fall squarely under this category because they involve expenses incurred for product repairs, replacements, or customer reimbursements due to defects or dissatisfaction with the product. In contrast, training and implementation assistance are examples of costs associated with improving internal processes and ensuring that employees can effectively utilize systems and procedures. Preventive maintenance costs are related to the upkeep and servicing of equipment to avoid future failures, which focus on maintaining quality rather than addressing failures after they occur. Quality control measures are proactive steps taken during the production process to ensure that quality standards are met, minimizing the chances of external failures rather than addressing issues that arise post-delivery. Therefore, warranty and return costs accurately represent external failure costs due to their direct connection to customer dissatisfaction and post-sale quality assurance.