Chapter 4, Problem 4.39BE

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

Bradshaw 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	$62,000
Training employees in TQM	$21,000
Training suppliers in TQM	$31,000
Identifying preferred suppliers that commit to on-time delivery of perfect quality materials	$55,000

The company 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	$65,000
Avoid inspection of raw materials	$50,000
Avoid warranty costs	$25,000

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 the company implement the new quality program? Give your reason.