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 $21,150 Disposing of incoming materials with poor quality 16,920 Disposing of scrap 59,220 Expediting late production 50,760 Final inspection 42,300 Inspecting incoming materials 8,460 Inspecting work in process 46,530 Preventive machine maintenance 29,610 Producing product 122,670 Responding to customer quality complaints 25,380 Total $423,000 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 Bar chart Which activity appears first, in order from left to right Producing product 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 Activity Activity Cost Cost of Quality Classification Value Added Non Value Added Classification Correcting invoice errors $21,150 External failure Non value added Disposing of incoming materials with poor quality 16,920 Internal failure Non value added Disposing of scrap 59,220 Internal failure Non value added Expediting late production 50,760 Internal failure Non value added Final inspection 42,300 Appraisal Value added Inspecting incoming materials 8,460 Appraisal Value added Inspecting work in process 46,530 Appraisal Value added Preventive machine maintenance 29,610 Prevention Value added Producing product 122,670 Not costs of quality Value added Responding to customer quality complaints 25,380 External failure Non value added Total $423,000 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 Classification Activity Cost Percent of Total Department Cost Prevention $fill in the blank 23 fill in the blank 24 Appraisal fill in the blank 25 fill in the blank 26 Internal failure fill in the blank 27 fill in the blank 28 External failure fill in the blank 29 fill in the blank 30 Not costs of quality fill in the blank 31 fill in the blank 32 Total $fill in the blank 33 fill in the blank 34 4 Determine the percentages of total department costs that are value added and non value added Activity Cost Percent of Total Department Cost Value added $fill in the blank 35 fill in the blank 36 Non value added fill in the blank 37 fill in the blank 38 Total $fill in the blank 39 fill in the blank 40 5 The department has fill in the blank 41 of its total costs as non value added Internal failure costs represent fill in the blank 42 of the total costs This means there is significant opportunity for cost savings External failure costs represent fill in the blank 43 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:

Activities	Activity Cost
Correcting invoice errors	$21,150
Disposing of incoming materials with poor quality	16,920
Disposing of scrap	59,220
Expediting late production	50,760
Final inspection	42,300
Inspecting incoming materials	8,460
Inspecting work in process	46,530
Preventive machine maintenance	29,610
Producing product	122,670
Responding to customer quality complaints	25,380
Total	$423,000

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? Bar chart

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

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.

Activity	Activity Cost	Cost of Quality Classification	Value-Added/ Non-Value-Added Classification
Correcting invoice errors	$21,150	External failure	Non-value-added
Disposing of incoming materials with poor quality	16,920	Internal failure	Non-value-added
Disposing of scrap	59,220	Internal failure	Non-value-added
Expediting late production	50,760	Internal failure	Non-value-added
Final inspection	42,300	Appraisal	Value-added
Inspecting incoming materials	8,460	Appraisal	Value-added
Inspecting work in process	46,530	Appraisal	Value-added
Preventive machine maintenance	29,610	Prevention	Value-added
Producing product	122,670	Not costs of quality	Value-added
Responding to customer quality complaints	25,380	External failure	Non-value-added
Total	$423,000

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 Classification	Activity Cost	Percent of Total Department Cost
Prevention	$fill in the blank 23	fill in the blank 24 %
Appraisal	fill in the blank 25	fill in the blank 26 %
Internal failure	fill in the blank 27	fill in the blank 28 %
External failure	fill in the blank 29	fill in the blank 30 %
Not costs of quality	fill in the blank 31	fill in the blank 32 %
Total	$fill in the blank 33	fill in the blank 34%

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

	Activity Cost	Percent of Total Department Cost
Value-added	$fill in the blank 35	fill in the blank 36 %
Non-value-added	fill in the blank 37	fill in the blank 38 %
Total	$fill in the blank 39	fill in the blank 40 %

5. The department has fill in the blank 41% of its total costs as non-value-added. Internal failure costs represent fill in the blank 42% of the total costs. This means there is significant opportunity for cost savings. External failure costs represent fill in the blank 43% of the total department costs.