What is 'Appraisal Costs'
Appraisal costs are a specific category of quality control costs. Companies pay appraisal costs as part of the quality control process to ensure that their products and services meet customer expectations and regulatory requirements. These costs could include expenses for field tests and inspections.
BREAKING DOWN 'Appraisal Costs'
Appraisal costs can be a key expense for companies seeking to maintain high levels of customer and regulatory satisfaction. Payments for secret shopper salaries, factory floor inspectors and technical screening equipment all fall into this category. Companies that spend large amounts of money for appraisal costs show that they are concerned with their reputations.
To prevent defective inventory or product from reaching their customers, companies get creative while incurring appraisal costs to spot suspect product. In the end, it is less expensive to incur appraisal costs than to lose customers who are frustrated by the receipt of low-quality goods. The internet and social media now give consumers unprecedented opportunities to voice their dissatisfaction. The threat of unpleasant reviews or viral PR mishaps keeps companies on their toes and investing in appraisals of their products.
Examples of Appraisal Costs
There are many examples of appraisal costs, and every industry is different. Appraisal costs can even be driven by where we are in a market cycle. Classic examples include:
- Inspecting materials delivered from suppliers
- Inspecting work-in-process materials
- Inspecting finished goods
- The supplies used to conduct inspections
- The inventory destroyed as part of the testing process
- Supervision of the inspection staff
- Depreciation of test equipment and software
- Maintenance of any test equipment
The next best thing to incurring appraisal costs includes working on increasing the quality of the production processes of all suppliers and the company itself. The idea of vendor and supply chain management seeks to improve the entire process, so it's inherently incapable of producing defective parts.