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Christi, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Christi's senior managers expect the engineering work to reduce

Christi, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Christi's senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the 2-year life of the skateboards follow. Also shown are the cost allocation rates for each activity.
Activity Predicted Reduction in Activity Units Activity Cost Allocation Rate Per Unit
Inspection of incoming materials 420 $37
Inspection of finished goods 420 26
Number of defective units discovered in-house 1,400 56
Number of defective units discovered by customers 325 75
Lost sales to dissatisfied customers 150 103
Requirements:
1. Calculate the predicted quality cost savings from the design engineering work.
2. Christi spent $103,000 on design engineering for the new skateboard. What is the net benefit of this "preventive" quality activity?
3. What major difficulty would Christi's managers have in implementing this cost-of-quality approach? What alternative approach could they use to measure quality improvement?

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