The president of Precision Machines wants to convert to TQM. The industrial machinery produced by Precision Machines is critical to customers. If defective machinery is sold to a client, the customer incurs very high costs. Precision Machines usually has to pay these costs because of warranties or lawsuits. The president believes that TQM will help the organization satisfy its customers. As part of the change to TQM, the president has asked you, the controller, to devise a system for measuring the different categories of quality cost: prevention, appraisal, internal failure, or external failure.

Describe the costs in each of these categories. For which categories will it be the most difficult to make cost estimates?