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 $16,320 Appraisal Non value added Disposing of incoming materials with poor quality 12,240 Appraisal Non value added Disposing of scrap 48,960 Expediting late production 40,800 Final inspection 40,800 Inspecting incoming materials 8,160 Inspecting work in process 44,880 Preventive machine maintenance 28,560 Producing product 146,880 Responding to customer quality complaints 20,400 Total $408,000 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 34 of its total costs as costs represent 25 of the total costs This means there is opportunity for cost savings costs represent 9 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	$16,320	Appraisal	Non-value-added
Disposing of incoming materials with poor quality	12,240	Appraisal	Non-value-added
Disposing of scrap	48,960
Expediting late production	40,800
Final inspection	40,800
Inspecting incoming materials	8,160
Inspecting work in process	44,880
Preventive machine maintenance	28,560
Producing product	146,880
Responding to customer quality complaints	20,400
Total	$408,000

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 34% of its total costs as . costs represent 25% of the total costs. This means there is opportunity for cost savings. costs represent 9% of the total department costs.