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 $26,520 Disposing of incoming materials with poor quality 22,100 Disposing of scrap 66,300 Expediting late production 57,460 Final inspection 44,200 Inspecting incoming materials 8,840 Inspecting work in process 44,200 Preventive machine maintenance 30,940 Producing product 114,920 Responding to customer quality complaints 26,520 Total $442,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Required: 1. 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? Activatindows GUM WROVIDER What type of chart is a Pareto chart? which activity appears first, in order from left to right? 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. Value Added/ Cost of Quality Non-Value Added Activity Activity Cost Classification Classification Correcting invoice errors $26,520 Disposing of incoming materials with poor quality 22,100 Disposing of scrap 66,300 Expediting tate production 57,460 Final inspection 44,200 Inspecting incoming materials 8,840 Inspecting work in process 44,200 Preventive machine maintenance 30,940 Producing product 114.920 Responding to customer quality complaints 26,520 w 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 (producing product). Quality Cost Percent of Total Classification Activity Cost Department Cost Prevention % Appraisal % Internal failure External failure % Not costs of quality % Total 9 4. Determine the percentages of total department costs that are value-added and non-value-added Percent of Total Activity Cost Department Cost Value-added % Non-value-added % Total % S. 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
