DALTON, GA. -- Had it not been for the sale of a young girl's handmade bedspread around 1900, this small town in the verdant Appalachian foothills of northwest Georgia might have spun out its years in an unremarkable way.

Instead, the place boasts a claim to fame that has created a hefty pool of slow-talking millionaire entrepreneurs and a cosmopolitan air that belies its early days as a rail shipping point for livestock and grain.

Dalton's name might not be a household word, but its products are under foot in homes and offices throughout the world. Ever since multineedle machines made it possible to "tuft" giant rolls of carpeting in the 1940s, this town has been the carpet capital of the United States. It now produces eight out of 10 carpets in the country. {Story, Page H22}

"There are 250 mills in town, wall to wall. Everybody's got lint in their hair," one former resident said.

Little wonder, then, that a scandal involving a major carpet maker called Collins & Aikman has tongues wagging. To the fiercely independent and competitive carpet industry, the flap puts at least a temporary blot on the business and raises the specter of stepped-up government scrutiny.

Sure, there have been controversies in these parts before, like the time 15 years ago when a carpet maker was caught shorting customers by a few feet on every roll. Or the day it snowed blue from all the dye particles in the air.

This time, though, the shock waves have spread far beyond Dalton -- to Wall Street and Santa Monica, Calif., home of Wickes Cos. The big Santa Monica conglomerate bought Collins & Aikman in January, just three months before the controversy erupted.

Wickes disclosed in April that the newly acquired unit had routinely submitted phony test results and sold carpeting that did not meet local safety standards. Some carpeting would have to be replaced, the company said, and the costs of resolving the problem were likely to be high.

In the weeks afterward, analysts initially put the numbers at as high as $300 million, but Wickes maintains that its own investigation -- a crash course in the arcane details of the carpet business -- has put to rest some fears. Wickes is still working on an estimate.

Officials at Collins & Aikman in Dalton aren't talking. On a recent visit to the Dalton headquarters on Smith Industrial Boulevard, a reporter was politely but firmly turned away from the mahogany-trimmed lobby. All questions were referred to Wickes.

Back in Santa Monica, Wickes Chairman Sanford C. Sigoloff reiterates that "we are optimistic that the exposure to Wickes is less than originally feared."

Laurence C. Baker, a Hutton vice president, now foresees Wickes establishing reserves of something over $100 million to deal with the problem in "one flash of any eye." The writeoff should have "absolutely no lasting effect," he added.

For Dalton, a town that a few years ago was immortalized in a Johnny Carson TV monologue as the divorce capital of America, the extra attention hasn't been especially welcome. "I think it is going to create more tension," said Donald W. Kuhn, president of WestPoint Pepperell's carpet and rug division in Dalton and chairman of the industry's biggest trade group, the Carpet & Rug Institute.

"We spend an awful lot of money to make sure our products are safe, and we work closely with the government to establish tests." But Kuhn acknowledged that "there's always a possibility" of more government intervention when something like this happens.

"It has made everyone more conscious and more careful {about testing procedures}," said Ronald E. VanGelderen, president of the trade institute.

With about 500 workers, the Collins & Aikman floor coverings division in Dalton is the area's 10th-largest manufacturing employer. Its sales of about $100 million a year represent about 10 percent of its parent company's overall sales.

Around Dalton, the company has a reputation for quality, and the disclosure of phony test results came as a shock to many. Competitors, however, are trying to distance themselves.

"I know what our position is. I know how we feel about making products and working with ... specifications," said John Shaheen, president of World Carpets, the area's second-largest mill. "We don't want to make products that don't pass."

The troubles at Collins & Aikman came to light in April after some school officials in Florida blew the whistle when they found that some new carpeting did not meet specifications for smoke density, which measures how much time a person would have to escape from a room before the smoke became too thick.

After its own tests corroborated the findings, Collins & Aikman reported the trouble to Wickes. Indications were that perhaps $360 million worth of commercial carpeting sold over the last decade with polyvinyl chloride backing might not meet certain local fire and smoke specifications.

Later, an even more astonishing disclosure was made: that Collins & Aikman employes had routinely submitted fraudulent safety test results to customers, including the federal government, schools and hospitals. Wickes fired four employes, including a couple of managers, and suspended the division's president, who had arrived just a year before.

For Wickes, this all came as unwanted fallout from its otherwise highly praised $1.16 billion acquisition in January of Collins & Aikman Corp., the New York-based textile company that owns the Dalton unit.

Wickes reported the trouble to auditor Arthur Andersen & Co., which said it would qualify its opinion of the company's annual financial results. As a result, Wickes publicly disclosed the matter April 15, saying the cost of resolving the problem was likely to be a "material amount."

Since early April, a Wickes task force headed by an outside director has been looking into what he calls a "complex morass" of local safety codes and customer records in an effort to determine the potential liability cost. The company, which has steadfastly maintained that the problem carpeting poses no safety risks, says an estimate of cost is still several weeks away.

Meanwhile, at least two suits have been filed against Wickes or Collins & Aikman, one in Philadelphia by a former dealer and another by a small Florida competitor. The former, a class action filed in federal court, seeks more than $60 million in damages, and the latter, a state suit, hopes to claim more than $250,000 in lost profits as well as unspecified punitive damages. That suit alleges that Collins & Aikman attempted to create a monopoly by telling customers that the plaintiff's products were inferior.

For now, Collins & Aikman is in the process of replacing carpeting at some Florida schools with a product that has a backing other than polyvinyl chloride. This new product ''absolutely'' meets all federal and local specifications, but has not before been sold commercially by Collins & Aikman, according to Edmund M. Kaufman, the outside director heading Wickes' task force.

Meanwhile, Roehmer said there was, indeed, the possibility that the Collins & Aikman situation will prompt closer federal scrutiny of testing and products. ''We'll probably make some changes in the selection of samples for testing,'' he said.

Meanwhile, in gossip-minded Dalton, the fear is that Collins & Aikman might be the tip of an iceberg. Some say the situation points out what can happen in an industry where the competition gets a little too intense. ''There are a lot of others that just haven't got caught,'' said one observer close to the industry.

Given the carpet market's total value of $6.5 billion, it's easy to understand why the problem at Collins & Aikman has Dalton on edge.

''It makes financial people in New York look at our industry and say: 'Look what those dumb Southerners have done,' '' said Reg Burnett, a longtime industry analyst who lives in Dalton. ''But in the long term these things are not going to affect the continued positive growth of the industry.

Dalton can only hope he's right. ''The county's fortunes rise and fall on the carpet industry,'' said George A. Hanson, a Chamber of Commerce official. ''When it's up, everything's up.'