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 activity analysis revealed the following: Activities Correcting invoice errors Disposing of incoming materials with poor quality Activity Cost $25,000 20,000 Disposing of scrap 65,000 Expediting late production 55,000 Final inspection 50,000 Inspecting incoming materials 10,000 Inspecting work in process 55,000 Preventive machine maintenance 35,000 Producing product 155,000 Responding to customer quality complaints Total 30,000 $500,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. 2. 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 Prevention Activity Cost Percent of Total Department Cost Appraisal Internal failure External failure Not costs of quality Total % % % % % % 3. Determine the percentages of total costs that are value-added and non-value-added. Percent of Total Activity Cost Department Cost Value-added % Non-value-added Total % % 4. 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.