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

10. Lori, Inc., is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Lori’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
R1. Calculate the predicted quality cost savings from the design engineering work.
R2. Lori spent $102,000 on design engineering for the new skateboard. What is the net benefit of this “preventive” quality activity?
R3. What major difficulty would Lori’s managers have in implementing this costs-of quality approach? What alternative approach could they use to measure quality improvement?
Hint
"The cost of quality approach allows a firm to establish the degree to which its resources are used for activities, which prevent poor quality, those that appraise the quality of the firm’s products/services, and those that arise from internal and external failures."...

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