Toys Corporation 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 are the cost allocation rates for the activities. Activity Predicted

Requirements
1. Calculate the predicted quality cost savings from the design engineering work.
2. The company spent $ 65,000 on design engineering for the new toy robot. What is the net benefit of this €œpreventive€ quality activity?
3. What major difficulty would management have had in implementing this costs-of-quality approach? What alternative approach could it use to measure qualityimprovement?

Transcribed Image Text:

Predicted vity Cost Reduction in Allocation Rate Activity Activity Units Unit $20 $32 $12 $41 $58 per 390 Inspection of finished goods390 3,500 900 290 Inspection of incoming materiais. Number of defective units discovered in-hous Number of defective units discovered by customers Lost sales to dissatisfied customers...nnn