Final answer:
Sales returns and allowances due to quality deficiencies are classified as External failure costs in a Cost of Quality (COQ) report. These costs arise from product failures that are identified after being delivered to the customer, involving returns or repairs.
Step-by-step explanation:
Within the concept of Cost of Quality (COQ), various types of costs are identified and classified to better understand where money is spent in relation to quality. These classifications allow organizations to focus on areas where they can improve quality and save costs in the long run. Sales returns and allowances due to quality deficiencies are financial impacts that an organization encounters when a product fails to meet quality standards after it has been sold to the customer.
The correct classification for sales returns and allowances due to quality deficiency is External failure costs. External failure costs are incurred when a product fails to meet quality requirements after it's been delivered to the customer, resulting in returns, repairs, replacements, or legal costs. These costs are termed 'external' because they occur outside the organization, rather than during the manufacturing process.
These costs contrast with Prevention costs, which are incurred to prevent defects from occurring in the first place; Appraisal costs, which cover testing and inspection to ensure products meet quality standards; Internal failure costs, which are related to defects found before the product reaches the customer; and Salvage costs, which refer to the reduced value of products that are defective and cannot be sold at full price.