Question

Pareto chart and cost of quality report for a service company The administrator of Liberty Hospital has been asked to perform an activity analysis of the emergency room (ER). The ER activities include cost of quality and other patient care activities. The lab tests and transportation are hospital services external to the ER for determining external failure costs. The result of the activity analysis is summarized as follows: Activities Patient registration Verifying patient information Assigning patients Searching/waiting for doctor Doctor exam Waiting for transport Transporting patients Verifying lab orders Searching for equipment Incorrect labs Activity Cost $ 6,500 9,700 13,000 9,200 4,900 17,500 16,200 14,500 8,200 11,300 17,000 19,000 8,200 4,800 $160,000 Lab tests Counting supplies Looking for supplies Staff training Total

Answer 1

Activity	Activity costs	Cost of quality classification	Value added/non value added
Patient registration	$ 6500	Patient care	Value added
Verifying patient information	$ 9700	Patient care	Non value added
Assigning patients	$ 13000	Patient care	Non value added
Searching/waiting for doctor	$ 9200	Internal failure	Non value added
Doctor exam	$ 4900	Appraisal costs	Value added
Waiting for transport	$ 17500	External failure	Non value added
Transporting patients	$ 16200	Patient care	Value added
Verifying lab orders	$ 14500	Prevention costs	Value added
Searching for equipment	$ 8200	Internal failure	Non value added
Incorrect labs	$ 11300	Internal failure	Non value added
Lab tests	$ 17000	Prevention costs	Value added
Counting supplies	$ 19000	Prevention costs	Value added
Looking for supplies	$ 8200	Internal failure	Non value added
Staff training	$ 4800	Appraisal costs	Value added
Total	$ 160000

3.

Quality cost classification	Activity costs	Percentage of total departmental costs
Prevention	$ 50500	31.56%
Appraisal	$ 9700	6.06%
Internal failure	$ 36900	23.06%
External failure	$ 17500	10.94%
Other patient care	$ 45400	28.38%
Total	$ 160000	100%

4.

	Activity costs	Percentage of total departmental costs
Value added	$ 82900	51.81%
Non value added	$ 77100	48.19%
Total	$ 160000	100%

5. The ER has 48.19% of total its costs as non value added.

Internal failure and external failure costs represent 34% of total costs.