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 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 VA NVA Correcting invoice errors $20,040 Disposing of incoming materials with poor quality 15,030 Disposing of scrap 75,150 Expediting late production 65,130 Final inspection 50,100 Inspecting incoming materials 10,020 Inspecting work in process 45,090 Preventive machine maintenance 35,070 Producing product 155,310 Responding to customer quality complaints 30,060 Total $501,000 2 On paper or in a spreadsheet program, prepare a Pareto chart for each of the activities listed above Answer the following What type of chart is a Pareto chart Which activity appears first, in order from left to right 3 Use the activity cost information to determine the percentages of total department costs that are prevention, appraisal, internal failure, external failure, and not costs of quality If required, round percentages to one decimal place Quality Cost Classification Activity Cost Percent of Total Department Cost Prevention $ Appraisal Internal failure External failure Not a cost of quality Total $ 4 Determine the percentages of total department costs that are value added and non value added If required, round percentages to one decimal place Activity Cost Percent of Total Department Cost Value added $ Non value added Total $ 5 The department has 41 of its total costs as costs represent 31 of the total costs This means there is opportunity for cost savings costs represent 10 of the total department costs

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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

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:

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	VA/NVA
Correcting invoice errors	$20,040
Disposing of incoming materials with poor quality	15,030
Disposing of scrap	75,150
Expediting late production	65,130
Final inspection	50,100
Inspecting incoming materials	10,020
Inspecting work in process	45,090
Preventive machine maintenance	35,070
Producing product	155,310
Responding to customer quality complaints	30,060
Total	$501,000

2. On paper or in a spreadsheet program, prepare a Pareto chart for each of the activities listed above. Answer the following:

What type of chart is a Pareto chart?

Which activity appears first, in order from left to right?

3. Use the activity cost information to determine the percentages of total department costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. If required, round percentages to one decimal place.

Quality Cost Classification	Activity Cost	Percent of Total Department Cost
Prevention	$	%
Appraisal		%
Internal failure		%
External failure		%
Not a cost of quality		%
Total	$	%

4. Determine the percentages of total department costs that are value-added and non-value-added. If required, round percentages to one decimal place.

	Activity Cost	Percent of Total Department Cost
Value-added	$	%
Non-value-added		%
Total	$	%

5. The department has 41% of its total costs as . costs represent 31% of the total costs. This means there is opportunity for cost savings. costs represent 10% of the total department costs.