What do internal failure costs refer to?

Internal failure costs refer specifically to the expenses incurred when a company detects and corrects defects in a product before it is delivered to customers. This includes costs associated with rework, scrap, re-inspection, and any other costs related to identifying and fixing quality issues that occur during the production process. These costs highlight the importance of maintaining high-quality standards within the organization to minimize the likelihood of defects.

In the context of the other options, inspections are part of the quality assurance process and relate more to assessing quality rather than rectifying failures, which accounts for option A. Customer dissatisfaction costs deal with issues that arise post-delivery—such as returns or complaints—and are linked to external failure costs that arise after the product has reached the customer, therefore relating to option C. Lost sales costs arise from a company's inability to fulfill customer demand or loss of business due to unsatisfactory products, which is not encapsulated in internal failure costs, making option D less relevant.

Thus, understanding internal failure costs helps organizations identify areas where they can improve efficiency and reduce waste by ensuring products meet quality standards before they reach customers.