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 activity analysis revealed the following:

Activities	Activity Cost
Correcting invoice errors	$23,460
Disposing of incoming materials with poor quality	19,550
Disposing of scrap	50,830
Expediting late production	43,010
Final inspection	39,100
Inspecting incoming materials	7,820
Inspecting work in process	39,100
Preventive machine maintenance	27,370
Producing product	121,210
Responding to customer quality complaints	19,550
Total	$391,000

The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap.

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	Value-Added/ Non-Value-Added Classification
Correcting invoice errors	$23,460	AppraisalExternal failureInternal failureNot costs of qualityPrevention	Non-value-addedValue-added
Disposing of incoming materials with poor quality	19,550
Disposing of scrap	50,830
Expediting late production	43,010
Final inspection	39,100
Inspecting incoming materials	7,820
Inspecting work in process	39,100
Preventive machine maintenance	27,370
Producing product	121,210
Responding to customer quality complaints	19,550
Total	$391,000

2. 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

3. Determine the percentages of total costs that are value-added and non-value-added.

Line Item Description	Activity Cost	Percent of Total Department Cost
Value-added
Non-value-added
Total

4. 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.