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 activity analysis revealed the following.

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 VA$/$NVA

Correcting invoice errors $$7,500$

Disposing of incoming materials with poor quality $15,000$

Disposing of scrap $27,500$

Expediting late production $22,500$

Final inspection $20,000$

Inspecting incoming materials $5,000$

Inspecting work in process $25,000$

Preventive machine maintenance $15,000$

Producing product $97,500$

Responding to customer quality complaints $15,000$

Total $$250,000$

$2.$ Select the following Pareto chart of the company activities.

a$.$

b$.$

c$.$

d$.$

The correct answer is

$3.$ 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 $22$

fill in the blank $23$

$\%$

Appraisal

fill in the blank $24$

fill in the blank $25$

$\%$

Internal failure

fill in the blank $26$

fill in the blank $27$

$\%$

External failure

fill in the blank $28$

fill in the blank $29$

$\%$

Not a cost of quality

fill in the blank $30$

fill in the blank $31$

$\%$

Total $

fill in the blank $32$

fill in the blank $33$

$\%$

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

Activity Cost Percent of Total

Department Cost

Value$-$added $

fill in the blank $34$

fill in the blank $35$

$\%$

Non$-$value$-$added

fill in the blank $36$

fill in the blank $37$

$\%$

Total $

fill in the blank $38$

fill in the blank $39$

$\%$

$5.$ The company has $65\%$ of its total costs as

$.$

costs represent $26\%$ of the total costs.

costs are $9\%$ of the total. There is only one activity classified as a$($n$)$

cost$.$