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Cost of poor quality and scrap rate calculator

Enter the month’s output, the units scrapped and reworked and what each costs. Get your scrap rate, first pass yield and what quality failures cost you per month, per year and per good unit.

Monthly output

units
Everything that was made, good and bad.
units
units
Units that were fixed and shipped. Do not count again the ones that ended up scrapped.

Costs

$/unit
Material plus the processing the unit had already received when it was scrapped.
min
$/h
Wage plus benefits and payroll taxes. Used for rework time and sorting.
h/mo
Time spent sorting or re-inspecting suspect lots.
$/mo
Monthly cost of returns, warranty, replacement freight and customer chargebacks.

Result

$8,280a month in quality failures

1.8% scrap and 4.5% rework: out of every 100 units, 93.7 are right the first time.

Per year
$99,360
Per good unit
$0.42
Scrap rate
1.80%
Rework rate
4.50%
First pass yield (FPY)
93.7%

Where the cost comes from

  • Scrap$2,880/mo
  • Rework$2,700/mo
  • Sorting and re-inspection$1,200/mo
  • External failure (customer)$1,500/mo

How to calculate scrap rate

Scrap rate is the share of the units you made that ended up in the scrap bin:

Scrap rate = units scrapped ÷ units produced × 100

Rework rate = units reworked ÷ units produced × 100

First pass yield (FPY) = (produced − scrapped − reworked) ÷ produced

“Units produced” means everything made in the period, good and bad. Dividing by good units gives a slightly higher figure and muddles month to month comparisons.

How to calculate the cost of poor quality

The calculator adds up the four failure costs a plant can actually count:

Scrap = units scrapped × cost per scrapped unit

Rework = units reworked × rework cost per unit (or time × labor rate)

Sorting = sorting and re-inspection hours × labor rate

External failure = returns, warranty and chargebacks for the month

Cost of poor quality = scrap + rework + sorting + external failure

The yearly cost is the monthly figure × 12, and cost per good unit spreads the month’s total over the units left: what each unit you ship carries in failure cost.

The four costs of quality (PAF model)

Armand Feigenbaum’s PAF model (prevention, appraisal, failure), along with Joseph Juran’s point that failure costs are “gold in the mine”, splits quality costs into four groups:

Category Examples Type
Prevention training, FMEA, poka-yoke, preventive maintenance cost of quality
Appraisal inspection, testing, gauge calibration cost of quality
Internal failure scrap, rework, sorting, re-inspection cost of poor quality
External failure returns, warranty, replacement freight, chargebacks cost of poor quality

Prevention and appraisal are spent on purpose, so defects do not happen or do not reach the customer. Internal and external failure are the price of defects that did. This calculator covers only the failure costs, the ones a plant can count each month. Overtime to make up output, lost customers and reputation are real too, but hard to measure, so the result here is a floor, not the full bill.

Worked example

The values preloaded in the calculator are for a stamped and welded part, in a month with:

  • 20,000 units produced
  • 360 scrapped and 900 reworked
  • Cost per scrapped unit: $8
  • Rework: 6 min per unit at a labor rate of $30/h, so $3 per unit
  • 40 h of sorting suspect lots
  • $1,500 in returns and warranty

The math:

  1. Scrap rate = 360 ÷ 20,000 = 1.8%
  2. Rework rate = 900 ÷ 20,000 = 4.5%
  3. First pass yield = (20,000 − 360 − 900) ÷ 20,000 = 93.7%
  4. Scrap = 360 × $8 = $2,880
  5. Rework = 900 × $3 = $2,700
  6. Sorting = 40 h × $30 = $1,200
  7. External failure = $1,500
  8. Cost of poor quality = $8,280 a month, or $99,360 a year
  9. Per good unit = $8,280 ÷ 19,640 = $0.42

A 1.8% scrap rate sounds small, yet it is 35% of the cost. And rework, which many plants never log, is close behind at 33%.

How to read the result

  • Look at the split, not just the total. The biggest slice of the bar is where improvement pays back fastest.
  • High external failure means defects are getting past inspection. Beyond the money, it hurts the customer relationship.
  • High rework with low scrap often hides an unstable process the team “saves” at the end of the line. First pass yield shows it; final yield does not.
  • To bring it down, break scrap out by defect type in a Pareto chart, go after the vital few and track the process DPMO and sigma level. Quality loss is also the third factor of OEE.

Common mistakes

  • Using the selling price as scrap cost. The cost is the material plus the processing already spent. Lost margin only counts if the scrapped unit leaves a sale unfilled.
  • One cost for all scrap. A unit lost at final assembly carries every step before it. If scrap happens at different points, use a weighted average cost.
  • Double counting. A unit that was reworked and then scrapped counts only as scrap.
  • Leaving out sorting and re-inspection. Hours spent sorting a suspect lot are a failure cost, even if nobody books them as scrap.
  • Calling the result the total cost of poor quality. It is what you can count. What does not show up, like a lost customer, is usually bigger.

Frequently asked questions

How do you calculate scrap rate?

Divide the units scrapped by the total units produced in the period, good and bad, and multiply by 100. With 360 units scrapped out of 20,000 produced, the scrap rate is 360 ÷ 20,000 × 100 = 1.8%.

How do you calculate the cost of scrap?

Multiply the units scrapped by the cost of each: the material plus the processing it had already received when it was thrown away. A part scrapped at final assembly costs more than one scrapped at the first operation. Subtract any scrap resale value if it matters.

What is the cost of poor quality?

What a company spends because work does not come out right the first time: scrap, rework, sorting suspect lots, returns, warranty and customer chargebacks. In the PAF model these are internal and external failure costs, as opposed to prevention and appraisal costs.

What are the four categories of quality costs?

Prevention (training, FMEA, preventive maintenance), appraisal (inspection, testing, calibration), internal failure (scrap, rework, sorting) and external failure (returns, warranty, complaints). The first two are spent to stop defects; the last two are the cost of poor quality.

What is a good scrap rate in manufacturing?

It depends on the process and the industry: machining and assembly often run under 1%, while molding, casting and new launches run higher. Tracking your own line’s trend and what the scrap costs is more useful than an industry benchmark.