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 $11,680 Disposing of incoming materials with poor quality 8,760 Disposing of scrap 35,040 Expediting late production 29,200 Final inspection 23,360 Inspecting incoming materials 5,840 Inspecting work in process 32,120 Preventive machine maintenance 20,440 Producing product 110,960 Responding to customer quality complaints 14,600 Total $292,000 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 chart Which activity appears first, in order from left to right Producing 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 $11,680 External failure Non value added Disposing of incoming materials with poor quality 8,760 Internal failure Non value added Disposing of scrap 35,040 Internal failure Non value added Expediting late production 29,200 Internal failure Non value added Final inspection 23,360 Appraisal Value added Inspecting incoming materials 5,840 Appraisal Value added Inspecting work in process 32,120 Appraisal Value added Preventive machine maintenance 20,440 Prevention Value added Producing product 110,960 Not costs of quality Value added Responding to customer quality complaints 14,600 External failure Non value added Total $292,000 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 $ 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 Activity Cost Percent of Total Department 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

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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

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	$11,680
Disposing of incoming materials with poor quality	8,760
Disposing of scrap	35,040
Expediting late production	29,200
Final inspection	23,360
Inspecting incoming materials	5,840
Inspecting work in process	32,120
Preventive machine maintenance	20,440
Producing product	110,960
Responding to customer quality complaints	14,600
Total	$292,000

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 chart

Which activity appears first, in order from left to right? Producing 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	$11,680	External failure	Non-value-added
Disposing of incoming materials with poor quality	8,760	Internal failure	Non-value-added
Disposing of scrap	35,040	Internal failure	Non-value-added
Expediting late production	29,200	Internal failure	Non-value-added
Final inspection	23,360	Appraisal	Value-added
Inspecting incoming materials	5,840	Appraisal	Value-added
Inspecting work in process	32,120	Appraisal	Value-added
Preventive machine maintenance	20,440	Prevention	Value-added
Producing product	110,960	Not costs of quality	Value-added
Responding to customer quality complaints	14,600	External failure	Non-value-added
Total	$292,000

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	$	%
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.

	Activity Cost	Percent of Total Department 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.