Final answer:
Quality costs are classified into prevention, appraisal, internal failure, and external failure costs. Depreciation of test equipment is an appraisal cost; warranty repairs are external failure costs; and lost sales due to poor quality reputation are also external failure costs.
Step-by-step explanation:
Quality costs are categorized into four groups: prevention costs, appraisal costs, internal failure costs, and external failure costs. These costs are incurred to ensure quality or due to the lack of it.
Depreciation of test equipment - This is considered an appraisal cost because it represents the cost of equipment used in testing and inspecting products to ensure they meet quality standards.
Warranty repairs - These costs are classified as external failure costs as they arise after the product has been sold to the customer and indicate failures or defects that were not caught before the product left the factory.
Lost sales arising from a reputation for poor quality - These costs fall into the category of external failure costs because they result from customers' negative perceptions of the company's products and can affect future sales.
Recognizing these categories helps companies understand where they incur costs in their quality management process and allows them to take corrective actions to improve their products and processes, potentially leading to a greater value in craftsmanship, community resources, and high-quality goods.