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 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 $21,600 Disposing of incoming materials with poor quality 17,280 Disposing of scrap 60,480 Expediting late production 51,840 Final inspection 43,200 Inspecting incoming materials 8,640 Inspecting work in process 47,520 Preventive machine maintenance 30,240 Producing product 125,280 Responding to customer quality complaints 25,920 Total $432,000 2 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 3 Use the activity cost information to determine the percentages of total department costs that are prevention, appraisal, internal failure, external failure, and not costs of quality If required, round percentages to one decimal place Quality Cost Classification Activity Cost Percent of Total Department Cost Prevention $ Appraisal Internal failure External failure Not a cost of quality Total $ 4 Determine the percentages of total department costs that are value added and non value added If required, round percentages to one decimal place Activity Cost Percent of Total Department Cost Value added $ Non value added Total $ 5 The department has 41 of its total costs as costs represent 30 of the total costs This means there is opportunity for cost savings costs represent 11 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:

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	$21,600
Disposing of incoming materials with poor quality	17,280
Disposing of scrap	60,480
Expediting late production	51,840
Final inspection	43,200
Inspecting incoming materials	8,640
Inspecting work in process	47,520
Preventive machine maintenance	30,240
Producing product	125,280
Responding to customer quality complaints	25,920
Total	$432,000

2. 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?

3. Use the activity cost information to determine the percentages of total department costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. If required, round percentages to one decimal place.

Quality Cost Classification	Activity Cost	Percent of Total Department Cost
Prevention	$	%
Appraisal		%
Internal failure		%
External failure		%
Not a cost of quality		%
Total	$	%

4. Determine the percentages of total department costs that are value-added and non-value-added. If required, round percentages to one decimal place.

	Activity Cost	Percent of Total Department Cost
Value-added	$	%
Non-value-added		%
Total	$	%

5. The department has 41% of its total costs as . costs represent 30% of the total costs. This means there is opportunity for cost savings. costs represent 11% of the total department costs.