Question
1. Pareto Chart and Cost of Quality Report for a Manufacturing Company The president of Mission Inc. has been concerned about the growth in costs
1.
Pareto Chart and Cost of Quality Report for a Manufacturing Company
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 result of the activity analysis is summarized as follows:
Activities | Activity Cost |
Correcting invoice errors | $12,040 |
Disposing of incoming materials with poor quality | 9,030 |
Disposing of scrap | 42,140 |
Expediting late production | 36,120 |
Final inspection | 21,070 |
Inspecting incoming materials | 6,020 |
Inspecting work in process | 27,090 |
Preventive machine maintenance | 21,070 |
Producing product | 111,370 |
Responding to customer quality complaints | 15,050 |
Total | $301,000 |
The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap.
a) 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 (producing product).
Quality Cost Classification | Activity Cost | Percent of Total Department Cost | ||
Prevention | $ | % | ||
Appraisal | % | |||
Internal failure | % | |||
External failure | % | |||
Not costs of quality | % | |||
Total | $ | % |
b. Determine the percentages of total department costs that are value-added and non-value-added.
Activity Cost | Percent of Total Department Cost | |||
Value-added | $ | % | ||
Non-value-added | % | |||
Total | $ | % |
c.The department has ________% of its total costs as non-value-added. Internal failure costs represent _______% of the total costs. This means there is significant opportunity for cost savings. External failure costs represent _________% of the total department costs.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started