Real Toys is using a costs of quality approach to evaluate design engineering efforts for a new toy robot. The company€™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 toy robot follow. Also shown is the cost allocation rate for each activity.

Requirements
1. Calculate the predicted quality cost savings from the design engineering work.
2. Real Toys spent $60,000 on design engineering for the new toy robot. What is the net benefit of this €œpreventive€ quality activity?
3. What major difficulty would Real Toys€™ managers have had in implementing this costs of quality approach? What alternative approach could they use to measure quality improvement?

Transcribed Image Text:

Predicted Reduction in ctivity Units Activity Cost Allocation Rate per Unit $20 Activity Inspection of incoming materials300 Inspection of finished goods ...300 15 35 5S Number of defective units discovered by customers 900 300