Question

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:

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	VA/NVA
Correcting invoice errors	$20,100
Disposing of incoming materials with poor quality	16,750
Disposing of scrap	50,250
Expediting late production	43,550
Final inspection	30,150
Inspecting incoming materials	6,700
Inspecting work in process	36,850
Preventive machine maintenance	23,450
Producing product	90,450
Responding to customer quality complaints	16,750
Total	$335,000

2. 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?

3. Use the activity cost information to determine the percentages of total department costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. If required, round percentages to one decimal place.

Quality Cost Classification	Activity Cost			Percent of Total Department Cost
Prevention	$			%
Appraisal				%
Internal failure				%
External failure				%
Not a cost of quality				%
Total	$			%

4. Determine the percentages of total department costs that are value-added and non-value-added. If required, round percentages to one decimal place.

	Activity Cost			Percent of Total Department Cost
Value-added	$			%
Non-value-added				%
Total	$			%

5. The department has 44% of its total costs as  .   costs represent 33% of the total costs. This means there is   opportunity for cost savings.   costs represent 11% of the total department costs.

Answer 1

Solution to Ques No.1

Classification of activities into preventive, appraisal, internal failure, external failure and not cost of quality and VA/NVA.

Solution to Question Net Cost of Quality Clasification _ VANVA_ External failure Activity Non- Value Added Internal Failure Activity Non-Value added Internal Failure Activity Non-Valu added Internal failure Activity Non-Value added Approisal Activity Value added Appraisal Activity Value added Appraisal Activity Value added Prevention Activity Valir added Not a Quality Cost Value added Choducing Product) External failure Non Value added