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 last several years. The president asked the controller to perform an activity analysis to gain a better insight into these costs. Activities Activity Cost Correcting invoice errors $19,900 15,920 Disposing of incoming materials with poor quality Disposing of scrap 59,700 Expediting late production 51,740 Final inspection 27,860 7,960 39,800 Inspecting incoming materials Inspecting work in process Preventive machine maintenance Producing product Responding to customer quality complaints 27,860 123,380 23,880 Total $398,000 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? 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 Cost of Quality Classification Value-Added/ Non-Value Added Classification Activity Activity Cost Correcting invoice errors $19,900 15,920 59,700 Disposing of incoming materials with poor quality Disposing of scrap Expediting late production Final inspection Inspecting incoming materials 51,740 27,860 7,960 Inspecting work in process 39,800 Preventive machine maintenance 27,860 Producing product 123,380 Responding to customer quality complaints 23,880 Total $398,000 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 Percent of Total Classification Activity Cost Department Cost Prevention $ % Appraisal % Internal failure % External failure % Not costs of quality % Total % 4. Determine the percentages of total department costs that are value-added and non-value-added. Percent of Total Department Cost Activity 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 % of the total department costs