Clarke, Inc., manufactures door panels. Suppose Clarke is considering spending

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E18-24 Classifying quality costs and using these costs to make decisions

Clarke, Inc., manufactures door panels. Suppose Clarke is considering spending the following amounts on a new total quality management (TQM) program:

Strength-testing one item from each batch of panels $ 62,000
Training employees in TQM 25,000
Training suppliers in TQM 38,000
Identifying suppliers who commit to on-time delivery of
perfect-quality materials 56,000
Avoid lost profits from lost sales due to disappointed customers $ 94,000
Avoid rework and spoilage 60,000
Avoid inspection of raw materials 55,000
Avoid warranty costs 20,000

Requirements

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

2. Should Clarke implement the new quality program? Give your reason.