Construction Toys Corp. is using a costs-of-quality approach to evaluate design
ID: 2605337 • Letter: C
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 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.
$ 65 comma 000$65,000
3.
What major difficulty would management have had in implementing thiscosts-of-quality approach? What alternative approach could it use to measure quality improvement
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
Explanation / Answer
Part 1- Calculation of predicted quality cost savings
Part 2 - Construction corp. inc.
Net Benefit design engineering for the new toy robot
Part 3 - There are many difficulties faced by management in implementing cost of quality approach such as difficulty faced in estimating the quality cost, estimation of any design cost to be spent for quality control, allocation of various cost.
Due to these difficulties, management used to prepare the non financial data focusing on quality aspects like Experience analysis, machine brekadowns records, customer grievances.
Activity Predicted reduction in activity units (A) Allocation rate (activity cost) (B) Predicted quality cost savings (A*B) Inspection of incoming materials 310 $23 $7130 Inspection of finished goods 310 $27 $8370 Number of defective units discovered in-house 3000 $19 $57000 Number of defective units discovered by customers 880 $42 $36960 Lost sales to dissatisfied customers 260 $56 $14560 Total Predicted quality cost savings $124020Related Questions
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