1. 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	$15,150
   Disposing of incoming materials with poor quality	12,120
   Disposing of scrap	36,360
   Expediting late production	30,300
   Final inspection	27,270
   Inspecting incoming materials	6,060
   Inspecting work in process	30,300
   Preventive machine maintenance	21,210
   Producing product	106,050
   Responding to customer quality complaints	18,180
   Total	$303,000

   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	$15,150		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Disposing of incoming materials with poor quality	12,120		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Disposing of scrap	36,360		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Expediting late production	30,300		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Final inspection	27,270		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Inspecting incoming materials	6,060		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Inspecting work in process	30,300		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Preventive machine maintenance	21,210		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Producing product	106,050		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Responding to customer quality complaints	18,180		AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
   Total	$303,000

   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.