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	Activity Cost
Patient registration	$ 6,500
Verifying patient information	9,700
Assigning patients	13,000
Searching/waiting for doctor	9,200
Doctor exam	4,900
Waiting for transport	17,500
Transporting patients	16,200
Verifying lab orders	14,500
Searching for equipment	8,200
Incorrect labs	11,300
Lab tests	17,000
Counting supplies	19,000
Looking for supplies	8,200
Staff training	4,800
Total	$160,000

Required:

1. Select the following Pareto chart of the ER activities.

a. Pareto Chart of Quality Activities $20,000 $18,000 $16,000 $14,000 $12,000 Lab tests Assigning patients Incorrect labs Patient registration Doctor exam Staff training Counting supplies Waiting for transport Transporting patients Verifying lab orders Looking for supplies Searching for equipment Verifying patient information Searching/waiting for doctor

b.

c.

d.

The correct answer is  

2. Classify the activities into prevention, appraisal, internal failure, external failure, and other patient care activities. Classify the activities into value-added and non-value-added activities.

Activity	Activity Cost		Cost of Quality Classification	Value-Added/ Non-Value-Added Classification
Patient registration	$6,500
Verifying patient information	9,700
Assigning patients	13,000
Searching/waiting for doctor	9,200
Doctor exam	4,900
Waiting for transport	17,500
Transporting patients	16,200
Verifying lab orders	14,500
Searching for equipment	8,200
Incorrect labs	11,300
Lab tests	17,000
Counting supplies	19,000
Looking for supplies	8,200
Staff training	4,800
Total	$160,000

3. Use the activity cost information to determine the percentages of total ER costs that are prevention, appraisal, internal failure, external failure, and other patient care activities.

Quality Cost Classification			Activity Cost			Percent of Total Department Cost
Prevention		$					%
Appraisal							%
Internal failure							%
External failure							%
Other patient care							%
	Total	$					%

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

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

5. The ER has % of its total costs as non-value-added. Internal failure and external failure costs represent % of the total costs.