Clegg, Inc. manufactures door panels. Suppose Clegg is considering spending the following amounts on a new total quality management (TQM) program:
Strength-testing one item from each batch of panels..........$ 70,000
Training employees in TQM.................... 22,000
Training suppliers in TQM .....................38,000
Identifying suppliers who commit to on-time delivery of
perfect-quality materials ..................... 55,000
Clegg expects the new program would save costs through the following:
Avoid lost profits from lost sales due to disappointed customers......$ 89,000
Avoid rework and spoilage ................... 61,000
Avoid inspection of raw materials ................ 52.000
Avoid warranty costs.................... 18.000
Requirements
1. Classify each cost 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.