Classifying quality costs and using these costs to make decisions Clarke, Inc., manufactures door panels. Suppose Clarke is considering spending the following amounts on a new total quality management (TQM) program:
|
Strength testing one item from each batch of panels |
$62,000 |
|
Training employees in TQM |
25,000 |
|
Training suppliers in TQM |
38,000 |
|
Identifying suppliers who commit to on time delivery of |
|
|
perfect quality materials |
56,000 |
Clarke expects the new program would save costs through the following:
|
Avoid lost profits from lost sales due to disappointed customers |
$94,000 |
|
Avoid rework and spoilage |
60,000 |
|
Avoid inspection of raw materials |
55,000 |
|
Avoid warranty costs |
20,000 |
Requirements
1. Classify each cost 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.