Question: Construction Toys Corp. 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

Construction Toys Corp. 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.

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Requirement 1. Calculate the predicted quality cost savings from the design engineering work.

Predicted

Reduction in

Activity

Activity Costs

Inspection of incoming materials. . . . . . . .

Inspection of finished goods. . . . . . . . . . .

Number of defective units

discovered in-house. . . . . . . . . . . . .

Number of defective units

discovered by customers. . . . . . . .

Lost sales to dissatisfied customers. . . . .

Total predicted quality cost savings

DATA TABLE

	Predicted	Activity Cost
	Reduction in	Allocation Rate
Activity	Activity Units	per Unit
Inspection of incoming materials. . . . . . . . . . . . . . . . . .	310	$23
Inspection of finished goods. . . . . . . . . . . . . . . . . . . . .	310	$27
Number of defective units discovered in-house. . . . . . . . .	3,000	$19
Number of defective units discovered by customers. . . .	880	$42
Lost sales to dissatisfied customers. . . . . . . . . . . . . . .	260	$56

REQUIREMENT

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

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