Predetermined Overhead Allocation Rate per Unit Predicted Reduction in Activity Activity Units 415 415 1,300 400 225 43 Inspection of incoming raw materials Inspection of finished goods Number of defective units discovered in-house Number of defective units discovered by customers Lost sales due to dissatisfied customers 21 75 102 Lilly, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Lilly's senior managers expect the engineering work to reduce appraisal, internal failure, and external failure activities. The predicted reductions in activities over the two-year life of the skateboards follow. Also shown are the predetermined overhead allocation rates for each activity EB (Click the icon to view the information.) Read the requirements Requirement 1. Calculate the predicted quality cost savings from the design engineering work. Predicted Reduction in Activity Units Predetermined Overhead Allocation Rate per Unit Predicted Quality Cost Savings 415 $ 415 43 Inspection of incoming raw materials Inspection of finished goods Number of defective units discovered in-house Number of defective units discovered by customers Lost sales Total nredinted nuality rnst savinns 21 1,300 400 75 due to dissatisfied customers 225 102 Requirement 2. Lilly spent $108,000 on design engineering for the new skateboard. What is the net benefit of this "preventive" quality activity? The net benefit of the "preventive" quality activity is$ Requirement 3. What major difficulty would Lilly's managers have in implementing this costs-of-quality approach? What alternative approach could they use to measure quality improvement? What major difficulty would Lilly's managers have in implementing this costs-of-quality approach? Measuring the cost of quality related activities is difficult. What alternative approach could they use to measure quality improvement? Monitor nonfinancial measures of quality and continuously try to improve them