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Prevention Costs –

i) Training Employees in TQM

ii) Training Suppliers in TQM

iii)Identifying suppliers who commit to on-time delivery of perfect-quality materials

Appraisal Cost –

i) Strength-testing one item from each batch of panels

Internal Failure Costs –

i) Avoid rework and Spoilage

ii) Avoid inspection of raw materials

External Failure Costs –

i) Avoid lost profits from lost sales due to disappointed customers

ii) Avoid warranty costs

Undertake the Quality Improvement Program_____________

Prevention

Training Employees in TQM $27,000

Training Suppliers in TQM $39,000

Identifying suppliers who commit to

on-time delivery of perfect-quality materials $58,000

Total Prevention Costs $124,000

Appraisal

Strength-testing one item from

each batch of panels $68,000

Total Appraisal Costs $68,000

Total cost of undertaking the quality improvement programs $192,000

Do not undertake the Quality Improvement Program_____________

Internal Failure

Avoid rework and spoilage $63,000

Avoid inspection of raw material $57,000

Total Internal Failure Costs $120,000

External Failure

Avoid lost profits from lost sales

due to disappointed customers $86,000

Avoid warranty costs $15,000

Total Appraisal Costs $101,000

Total cost of undertaking the quality improvement programs $221,000

As it can be seen from the above analysis, if quality improvement programs are taken Clason can save $29,000 cost.

So it is advisable to take the quality improvement programs.