CPIM Practice Exam

Which of the following is considered a prevention cost?

1. Scrap costs

2. Product recalls

3. Employee training

4. Market analysis

The correct answer is: Employee training

Prevention costs are expenditures incurred to prevent defects or issues in products and services before they occur. Employee training is a prime example of a prevention cost because it aims to equip staff with the necessary skills and knowledge to perform their jobs efficiently, minimize errors, and enhance overall product quality. By investing in training, organizations can significantly reduce the likelihood of defects, leading to lower costs associated with rework, scrap, and warranty claims down the line. While scrap costs represent the financial loss attributed to defective products that cannot be sold or used, and product recalls involve costs incurred after a defect has been identified in sold products, both are categorized as failure costs rather than prevention costs. Market analysis, although important for strategic decision-making, falls more under planning and operational costs rather than being a direct form of prevention against defects. Therefore, the emphasis on training employees directly correlates to the concept of preventing problems in the first place, making it the appropriate choice for a prevention cost.