Clarke Corp. manufactures radiation-shielding glass panels. Suppose Clarke is considering spending the following amounts on a new TQM program:
Strength-testing one item from each batch of panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,000
Training employees in TQM . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,000
Training suppliers in TQM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $33,000
Identifying preferred suppliers who commit to on-time delivery of perfect quality materials . . . .$59,000
Clarke expects the new program to save costs through the following:
Avoid lost profits from lost sales due to disappointed customers . . . . . . . . . . . . $92,000
Avoid rework and spoilage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $65,000
Avoid inspection of raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $51,000
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 Clarke implement the new quality program? Give your reason.