Lori, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Christi'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.
Activity	Predicted Reduction in Activity Units	Activity Cost Allocation Rate Per Unit
Inspection of incoming materials	415	$45
Inspection of finished goods	415	19
Number of defective units discovered in-house	1,100	50
Number of defective units discovered by customers	375	70
Lost sales to dissatisfied customers	150	106
1. Calculate the predicted quality cost savings from the design engineering work.
2. Lori spent $101,000 on design engineering for the new skateboard. What is the net benefit of this "preventive" quality activity?
3. What major difficulty would Lori's managers have in implementing this cost-of-quality approach? What alternative approach could they use to measure quality improvement?