Creighton Corp. manufactures radiation-shielding glass panels. Suppose the company is considering spending the following amounts on a new TQM program:
Strength-testing one item from each batch of panels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $63,000
Training employees in TQM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,000
Training suppliers in TQM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,000
Identifying preferred suppliers who commit to on-time delivery of perfect quality materials...$60,000
The company expects the new program would save costs through the following:
Avoid lost profits from lost sales due to disappointed customers . . . . . . . . . . . . $91,000
Avoid rework and spoilage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $64,000
Avoid inspection of raw materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $57,000
Avoid warranty costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,000
Requirements
1. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.
2. Should the company implement the new quality program? Give your reason.