Reviewed November 2026. Formulas are shown above the guide. Report an error or request a calculator.
Put quality losses in money
A scrap rate of 3% sounds small in a production meeting. A loss of $90,000 a year does not. This calculator turns scrap and rework percentages into a yearly cost so that an improvement project can be compared with any other investment.
It covers the two most visible parts of the cost of poor quality: parts thrown away and parts fixed by hand. Inspection labor, warranty claims and lost customers come on top.
Worked example
The defaults describe a line making 40,000 units a month at a full cost of $6.40 each, with 3.2% scrap, $0.40 salvage per scrapped part, 4.5% rework and $1.90 of labor per reworked part.
| Item | Per year |
|---|---|
| Scrapped units (40,000 × 3.2% × 12) | 15,360 |
| Scrap loss (15,360 × ($6.40 − $0.40)) | $92,160 |
| Rework loss (21,600 × $1.90) | $41,040 |
| Total quality loss | $133,200 |
Cutting scrap to the 1.5% target saves $48,960 a year, which is the budget ceiling for the project that gets you there.
Which unit cost to use
Use the cost the part has absorbed at the step where it is rejected. A casting scrapped at incoming inspection costs its purchase price. The same casting scrapped after machining, plating and assembly carries all of that work. If your rejects happen at several stations, run the calculator once per station or use a weighted average.
Common mistakes
- Counting rework as free because the part is eventually shipped. Rework uses labor, machine time and floor space, and it delays orders.
- Using material cost only. That understates the loss, often by half.
- Setting a target that ignores the cause. A target is useful only with a plan; use the saving to size what you can spend on fixtures, training or inspection.
Frequently asked questions
What is the cost of poor quality?
All costs that would disappear if every part were made right the first time: scrap, rework, extra inspection, warranty and returns. This calculator covers scrap and rework.
Is a 3% scrap rate high?
It depends on the process. Machining lines often run below 1%, while new products and complex assemblies can exceed 5%. Compare with your own trend rather than an industry average.
Should I include material I can sell as scrap?
Yes, enter it as salvage value per scrapped unit. It reduces the loss.
How do I justify a quality project?
Use the yearly saving at target as the benefit, then compare it with the project cost in the equipment payback calculator.