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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 Activity Cost

Correcting invoice errors $$11,550$

Disposing of incoming materials with poor quality $9,240$

Disposing of scrap $34,650$

Expediting late production $30,030$

Final inspection $18,480$

Inspecting incoming materials $4,620$

Inspecting work in process $25,410$

Preventive machine maintenance $16,170$

Producing product $66,990$

Responding to customer quality complaints $13,860$

Total $$231,000$

The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap.

Required:

$1.$ 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.

Activity Activity

Cost Cost of Quality

Classification Value$-$Added$/$

Non$-$Value$-$Added

Classification

Correcting invoice errors $$11,550$

Disposing of incoming materials with poor quality $9,240$

Disposing of scrap $34,650$

Expediting late production $30,030$

Final inspection $18,480$

Inspecting incoming materials $4,620$

Inspecting work in process $25,410$

Preventive machine maintenance $16,170$

Producing product $66,990$

Responding to customer quality complaints $13,860$

Total $$231,000$

$2.$ 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 Activity Cost Percent of Total

Department Cost

Prevention $fill in the blank $21$

fill in the blank $22$

$\%$

Appraisal fill in the blank $23$

fill in the blank $24$

$\%$

Internal failure fill in the blank $25$

fill in the blank $26$

$\%$

External failure fill in the blank $27$

fill in the blank $28$

$\%$

Not costs of quality fill in the blank $29$

fill in the blank $30$

$\%$

Total $fill in the blank $31$

fill in the blank $32$

$\%$

$3.$ Determine the percentages of total costs that are value$-$added and non$-$value$-$added.

Line Item Description Activity Cost Percent of Total

Department Cost

Value$-$added $fill in the blank $33$

fill in the blank $34$

$\%$

Non$-$value$-$added fill in the blank $35$

fill in the blank $36$

$\%$

Total $fill in the blank $37$

fill in the blank $38$

$\%$

$4.$ The department has fill in the blank $1$ of $3$

$\%$ of its total costs as non$-$value$-$added. Internal failure costs represent fill in the blank $2$ of $3$

$\%$ of the total costs. This means there is significant opportunity for cost savings. External failure costs represent fill in the blank $3$ of $3$

$\%$ of the total department costs.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$).$

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

The department has

Percent of Total

Department Cost