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 Activity Cost Correcting invoice errors $12,600 Disposing of incoming materials with poor quality 10,080 Disposing of scrap 37,800 Expediting late production 32,760 Final inspection 22,680 Inspecting incoming materials 5,040 Inspecting work in process 25,200 Preventive machine maintenance 17,640 Producing product 73,080 Responding to customer quality complaints 15,120 Total $252,000 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 Bar chartLine chartOrganization chartPie chart Which activity appears first, in order from left to right Disposing of scrapCorrecting invoice errorsExpediting late productionInspecting work in processProducing product 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 Activity Activity Cost Cost of Quality Classification Value Added Non Value Added Classification Correcting invoice errors $12,600 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Disposing of incoming materials with poor quality 10,080 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Disposing of scrap 37,800 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Expediting late production 32,760 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Final inspection 22,680 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Inspecting incoming materials 5,040 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Inspecting work in process 25,200 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Preventive machine maintenance 17,640 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Producing product 73,080 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Responding to customer quality complaints 15,120 AppraisalExternal failureInternal failureNot costs of qualityPrevention Non value addedValue added Total $252,000 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 Activity Cost Percent of Total Department Cost Prevention $fill in the blank 23 fill in the blank 24 Appraisal fill in the blank 25 fill in the blank 26 Internal failure fill in the blank 27 fill in the blank 28 External failure fill in the blank 29 fill in the blank 30 Not costs of quality fill in the blank 31 fill in the blank 32 Total $fill in the blank 33 fill in the blank 34 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 $fill in the blank 35 fill in the blank 36 Non value added fill in the blank 37 fill in the blank 38 Total $fill in the blank 39 fill in the blank 40 5 The department has fill in the blank 41 of its total costs as non value added Internal failure costs represent fill in the blank 42 of the total costs This means there is significant opportunity for cost savings External failure costs represent fill in the blank 43 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:

Activities	Activity Cost
Correcting invoice errors	$12,600
Disposing of incoming materials with poor quality	10,080
Disposing of scrap	37,800
Expediting late production	32,760
Final inspection	22,680
Inspecting incoming materials	5,040
Inspecting work in process	25,200
Preventive machine maintenance	17,640
Producing product	73,080
Responding to customer quality complaints	15,120
Total	$252,000

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?

Bar chartLine chartOrganization chartPie chart

Which activity appears first, in order from left to right?

Disposing of scrapCorrecting invoice errorsExpediting late productionInspecting work in processProducing product

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.

Activity	Activity Cost	Cost of Quality Classification	Value-Added/ Non-Value-Added Classification
Correcting invoice errors	$12,600	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Disposing of incoming materials with poor quality	10,080	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Disposing of scrap	37,800	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Expediting late production	32,760	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Final inspection	22,680	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Inspecting incoming materials	5,040	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Inspecting work in process	25,200	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Preventive machine maintenance	17,640	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Producing product	73,080	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Responding to customer quality complaints	15,120	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Total	$252,000

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	Activity Cost	Percent of Total Department Cost
Prevention	$fill in the blank 23	fill in the blank 24 %
Appraisal	fill in the blank 25	fill in the blank 26 %
Internal failure	fill in the blank 27	fill in the blank 28 %
External failure	fill in the blank 29	fill in the blank 30 %
Not costs of quality	fill in the blank 31	fill in the blank 32 %
Total	$fill in the blank 33	fill in the blank 34%

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	$fill in the blank 35	fill in the blank 36 %
Non-value-added	fill in the blank 37	fill in the blank 38 %
Total	$fill in the blank 39	fill in the blank 40 %

5. The department has fill in the blank 41% of its total costs as non-value-added. Internal failure costs represent fill in the blank 42% of the total costs. This means there is significant opportunity for cost savings. External failure costs represent fill in the blank 43% of the total department costs.