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 $15,420 Disposing of incoming materials with poor quality 12,850 Disposing of scrap 33,410 Expediting late production 28,270 Final inspection 23,130 Inspecting incoming materials 5,140 Inspecting work in process 28,270 Preventive machine maintenance 17,990 Producing product 79,670 Responding to customer quality complaints 12,850 Total $257,000 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? 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. Cost of Quality Classification Value Added/ Non-Value Added classification Activity Activity Cost $15,420 12,850 33,410 Correcting invoice errors Disposing of incoming materials with poor quality Disposing of scrap Expediting late production Final inspection Inspecting Incoming materials Inspecting work in process Preventive machine maintenance Producing product Responding to customer quality complaints Total 28,270 23,130 5,140 28,270 17,990 79,670 12,850 $257,000 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 costs. This means there is significant opportunity for cost savings. External failure costs represent costs % of the total % of the total department