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 Correcting invoice errors Activity Cost $30,060 Disposing of incoming materials with poor quality 25,050 Disposing of scrap 75,150 Expediting late production 65,130 Final inspection 35,070 Inspecting incoming materials 10,020 Inspecting work in process 50,100 Preventive machine maintenance 35,070 Producing product 150,300 25,050 $501,000 Responding to customer quality complaints Total 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? 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. 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. V Activity Activity Cost Cost of Quality Classification Value-Added/ Non-Value-Added Classification Correcting invoice errors $30,060 Disposing of incoming materials with poor quality 25,050 Disposing of scrap 75,150 Expediting late production 65,130 Final inspection 35,070 Inspecting incoming materials Inspecting work in process Preventive machine maintenance Producing product Responding to customer quality complaints 10,020 50,100 35,070 150,300 25,050 Total $501,000 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 Prevention Appraisal Internal failure External failure Not costs of quality Total Activity Cost Percent of Total Department Cost % % % % % EBOOK Print Item Inspecting incoming materials Inspecting work in process Preventive machine maintenance Producing product Responding to customer quality complaints Total 10,020 50,100 35,070 150,300 25,050 $501,000 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 Prevention K Appraisal Internal failure External failure Not costs of quality Total Activity Cost Percent of Total Department Cost % % % % % % 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 Non-value-added Total % % % 5. 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 total department costs. % of the