Question

ClasonClason

Corp. manufactures​ radiation-shielding glass panels.

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Requirements

1. Classify each item as a prevention​ cost, an appraisal​ cost, an internal failure​ cost, or an external failure cost.

2. Should

ClasonClason

implement the new quality​ program? Give your reason.

Requirement 1. Classify each item as a prevention​ cost, an appraisal​ cost, an internal failure​ cost, or an external failure cost.

Type of Quality Cost	Cost
	Strength-testing one item from each batch of panels

Suppose

ClasonClason

is considering spending the following amounts on a new TQM​ program:

Strength-testing one item from each batch of panels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$71,000
Training employees in TQM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$31,000
Training suppliers in TQM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$35,000
Identifying preferred suppliers that commit to on-time delivery of perfect quality materials. . . . . . .	$50,000

ClasonClason

expects the new program to save costs through the​ following:

Avoid lost profits from lost sales due to disappointed customers. . . . .	$90,000
Avoid rework and spoilage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$61,000
Avoid inspection of raw materials. . . . . . . . . . . . . . . . . . . . . . . .	$55,000
Avoid warranty costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$17,000

Answer 1

Part 1

Undertake the New TQM Program

Prevention
Training employees in TQM	31000
Training suppliers in TQM	35000
Identifying suppliers who commit to on-time delivery of perfect-quality materials	50000
Total prevention costs	116000
Appraisal
Strength-testing one item from each batch of panels	71000
Total appraisal costs	71000
Total costs of undertaking the new TQM program	$187000

Do Not Undertake the New TQM Program

Appraisal
Avoid inspection of raw materials	55000
Total appraisal costs	55000
Internal Failure
Avoid rework and spoilage	61000
Total internal failure costs	61000
External Failure
Avoid lost profits from lost sales due to disappointed customers	90000
Avoid warranty costs	17000
Total external failure costs	107000
Total costs of not undertaking the new TQM program	$223000

Part 2

Clason should implement the new TQM program

Because the total cost of undertaking the new TQM program ($187,000) is less than the total cost of not undertaking the new TQM program ($223,000) by $36,000. Clason would save $36,000 by undertaking the program.