Clegg manufactures radiation-shielding glass panels. Suppose Clegg is considering spending the following amounts on a new TQM program:
Strength-testing one item from each batch of panels................. $68,000
Training employees in TQM...................................................... 30,000
Training suppliers in TQM .................................................... 32,000
Identifying preferred suppliers who commit to
on-time delivery of perfect quality materials.................................. 60,000
Clegg expects the new program would save costs through the following:
void lost profits from lost sales due to disappointed customers............. $95,000
Avoid rework and spoilage...................................................................... 67,000
Avoid inspection of raw materials........................................................... 57,000
Avoid warranty costs .............................................................................. 16,000
Requirements
1. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.
2. Should Clegg implement the new quality program? Give your reason.