Which of the following is an example of an external failure cost?

Question

BlackTom AI · Accepted Answer

When considering external failure costs, we look at expenses that occur after a product or service has reached the customer or outside the organization due to a failure. 
Option 1: 'Fines for breach of environmental standards' fits this category because the organization incurs penalties externally as a consequence of not meeting environmental regulations, which happen outside the production process and post-delivery impact. 
Option 2: 'Employee health costs' are typically incurred inside the company due to workplace incidents or health issues, classified as internal failure costs or possibly preventive/occupational health investments, not external failures to customers. 
Option 3: 'Implementation costs of new technology minimising risk of environmental damage' are investments aimed at prevention, intended to stop defects or damages before they affect customers, thus falling under prevention costs rather than external failures. 
Option 4: 'Costs to monitor existing environmental systems in the organisation' correspond to appraisal or monitoring activities used to ensure compliance and detect issues early, which again are prevention/appraisal costs, not external failure costs. 
In summary, external failure costs arise from failures perceived or penalized outside the organization after delivery, which aligns with fines for environmental breaches rather than the internal or preventive cost categories represented by the other options.

BACC012 Week 11: Practice Quiz

Which of the following is an example of an external failure cost?

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