E4-27A Classify costs and make a quality-initiative decision

(Learning Objective 5)

Clason Corp. manufactures radiation-shielding glass panels. Suppose Clason is considering spending the following amounts on a new TQM program:

Strength-testing one item from each batch of panels...................................................................................... $62,000 Training employees in TQM.............................................................................................................................. $23,000 Training suppliers in TQM................................................................................................................................. $34,000 Identifying preferred suppliers that commit to on-time delivery of perfect quality materials......................... $51,000 Clason expects the new program to save costs through the following:

Avoid lost profits from lost sales due to disappointed customers.................... $85,000 Avoid rework and spoilage................................................................................ $66,000 Avoid inspection of raw materials...................................................................... $49,000 Avoid warranty costs.......................................................................................... $25,000 Requirements 1. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.

2. Should Clason implement the new quality program? Give your reason.