A component of cost of quality, appraisal or inspection cost is the cost incurred by an organization on product quality inspection and testing. It’s the cost that a company pays to create quality consistently and which ensures defective products aren’t shipped out to the customer. Generally, quality testing teams are in place to ensure adherence to quality. The cost incurred to run the team is appraisal cost. An appraisal cost, within the production context, isn’t appraising for value, unlike a home appraisal. The objective is to find out faults in products, if any.

Importance

When a company doesn’t appraise its products, the likeliness of faulty or low-quality goods reaching the customer increases. And that bad shopping experience typically results in the company losing the customer and subsequent profits, and also the money and effort spent on advertising and marketing to acquire the customer. This makes an appraisal cost vital for a company’s sales, profits, competitiveness and brand equity.