Chapter 4, Problem 4.28AE

Classify costs and make a quality-initiative decision (Learning Objective 5)

Sinclair Corp. manufactures radiation-shielding glass panels. Suppose Sinclair 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	$27,000
Training suppliers in TQM	$39,000
Identifying preferred suppliers that commit to on-time delivery of perfect quality materials	$52,000

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

Avoid lost profits from lost sales due to disappointed customers	$93,000
Avoid rework and spoilage	$64,000
Avoid inspection of raw materials	$52,000
Avoid warranty costs	$19,000

Requirements

1. 1. Classify each item as a prevention cost, an appraisal cost, an internal failure cost, or an external failure cost.
2. 2. Should Sinclair implement the new quality program? Give your reason.