Roxi, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Roxi's 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
1. Calculate the predicted quality cost savings from the design engineering work.
2. Roxi spent $109,000 on design engineering for the new skateboard. What is the net benefit of this "preventive" quality activity?
3. What major difficulty would Roxi's managers have in implementing this costs-of-quality approach? What alternative approach could they use to measure qualityimprovement?

Predicted Activity Cost Allocation Rate Reduction in Activity Per Unit Activity Units Inspoction of incoming materials Inspection of finishcd goods 385 $ 39 385 22 Number of defective units discovered in-house 1,200 55 Number of defective units discovered by customers. Lost sales to dissatisfied customers .... 300 73 100 97