Chihooli, inc., manufactures radiation-shielding glass panels. Suppose chihooli

Question

Chihooli, inc., manufactures radiation-shielding glass panels. Suppose chihooli is considering spending the following amounts on a new total quality management (TQM) program;

Stength testing on item from each batch of panels 65000
Training employees in TQM 30000
training suppliers in TQM 40000
Identifying preferred suppliers who commit to on time delivery of perfect quality materials 60000

Chihooli expects the nre program would save costs through the following:

Aviod lost profits from the lost sales due to disappointed customers 90000
aviod rework and spoilage 55000
aviod inspection of raw materials 45000
aviod warranty costs 15000

A.) classify each item as a prevention cost, an appriasal cost and internal failure cost or external failure cost.

B.) should chihooli implement the new quality program? give reason.

Explanation / Answer

A. Quality costs: Quality costs are 4 types they are as follows; 1. Prevention costs 2. Appraisal costs 3. Internal failure costs 4. External failure costs. First two costs (1 and 2) are the costs incurred for the efforts to prevent defects. Second two (3 and 4) are the costs incurred due to the poor performance of the concern which leads to the defects in the products. So based on the above we can classify the costs as follows; Prevention costs: As the Training of employees and the suppliers are the efforts to prevent the defects these are prevention costs. And identifying the supplier who commit to on time delivery of perfect quality material is also an effort to prevent the defects through getting good quality material so it is also a prevention cost. Appraisal cost: Strength testing on item from each batch of panels and the cost of inspection of raw materials are the appraisal costs as they are the efforts to identify the defective products before they sent to the customers. Internal failure costs: Rework and spoilage are the internal failure costs as they resulted from the identification of defective items. External failure costs: Lost profits from the lost sales due to disappointed customers and warranty costs are the external failure costs as they are the results of the poor performance of the concern. B. Chihooli should implement the new quality program as the program concentrated on the prevention costs. More over the cost savings are more than the costs incurred, so the company can implement the program. More concentration on prevention costs leads to the decrease in the appraisal costs as well as mainly internal and external failure costs. Lost profits from the lost sales due to disappointed customers and warranty costs are the external failure costs as they are the results of the poor performance of the concern. B. Chihooli should implement the new quality program as the program concentrated on the prevention costs. More over the cost savings are more than the costs incurred, so the company can implement the program. More concentration on prevention costs leads to the decrease in the appraisal costs as well as mainly internal and external failure costs.

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