. Lori, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Loris 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.

Requirements

R1. Calculate the predicted quality cost savings from the design engineering work.

R2. Lori spent $102,000 on design engineering for the new skateboard. What is the net benefit of this preventive quality activity?

R3. What major difficulty would Loris managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement?

Activity Inspection of incoming materials Inspection of finished goods Number of defective units discovered in-house Number of defective units discovered by customers Lost sales to dissatisfied customers Predicted Activity Cost Reduction in Allocation Rate Activity Units Per Unit 380 46 380 25 1,200 50 275 74 175 101