Pareto chart and cost of quality report for a manufacturing company obj. 3 The president of Mission Inc. has been concerned about the growth in costs over the last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. The activity analysis revealed the following:

Activities Activity Cost Correcting invoice errors $ 7,500 Disposing of incoming materials with poor quality 15,000 Disposing of scrap 27,500 Expediting late production 22,500 Final inspection 20,000 Inspecting incoming materials 5,000 Inspecting work in process 25,000 Preventive machine maintenance 15,000 Producing product 97,500 Responding to customer quality complaints 15,000 Total $250,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap.

Instructions 1. Prepare a Pareto chart of the company activities.

2. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality (producing product). Classify the activities into value-added and non-value added activities.

3. Use the activity cost information to determine the percentages of total costs that are prevention, appraisal, internal failure, external failure, and not costs of quality.

4. Determine the percentages of total costs that are value- and non-value-added.

5. Interpret the information.