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4. Stella, Inc. is using a costs-of-quality approach to evaluate design engineering efforts for a new skateboard. Stella'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 (Click the icon to view the information.) Read the requirements Requirement 1. Calculate the predicted quality cost savings from the design engineering work. Predicted Reduction in Activity Units Predetermined Overhead Allocation Rate per Unit Predicted Quality Cost Savings Inspection of incoming raw materials Inspection of finished goods Number of defective units discovered in-house Number of defective units discovered by 390 390 1,200 325 75 50 72 102 customers Lost sales due to dissatisfied customers Total predicted quality cost savings Requirement 2. Stella spent $103,000 on design engineering for the new skateboard. What is the net benefit of this "preventive" quality activity? The net benefit of the "preventive" quality activity is $ Requirement 3. What major difficulty would Stella's managers have in implementing this costs-of-quality approach? What alternative approach could they use to measure quality improvement? What major difficulty would Stella's managers have in implementing this costs-of-quality approach? What alternative approach could they use to measure quality improvement? 1: Data Table Predetermined Overhead Allocation Rate per Unit Predicted Reduction in Activity Activity Units Inspection of incoming raw materials Inspection of finished goods Number of defective units discovered in-house Number of defective units discovered by customers Lost sales due to dissatisfied customers 390 390 1,200 325 75 19 50 72 102

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