Lilly Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Lillys

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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.
Lilly Inc. is using a costs-of-quality approach to evaluate design

Requirements
1. Calculate the predicted quality cost savings from the design engineering work.
2. Lilly spent $100,000 on design engineering for the new skateboard. What is the net benefit of this €œpreventive€ quality activity?
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?

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Horngrens Financial and Managerial Accounting

ISBN: 978-0133866292

5th edition

Authors: Tracie L. Nobles, Brenda L. Mattison, Ella Mae Matsumura

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