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 activity analysis revealed the following. 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.
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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 activity analysis revealed the following.
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 VA/NVA Correcting invoice errors $7,500 Disposing of incoming materials with poor quality 15,000 Disposing of scrap 27,500 Expediting late production 22,500 Final inspection 20,000 Inspecting incoming materials 5,000 Inspecting work in process 25,000 Preventive machine maintenance 15,000 Producing product 97,500 Responding to customer quality complaints 15,000 Total $250,000 2. Select the following Pareto chart of the company activities.
a. b. c. d. The correct answer is
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
ClassificationActivity Cost Percent of Total
Department CostPrevention $fill in the blank 22 fill in the blank 23 % Appraisal fill in the blank 24 fill in the blank 25 % Internal failure fill in the blank 26 fill in the blank 27 % External failure fill in the blank 28 fill in the blank 29 % Not a cost of quality fill in the blank 30 fill in the blank 31 % Total $fill in the blank 32 fill in the blank 33 % 4. Determine the percentages of total costs that are value- and non-value-added.
Activity Cost Percent of Total
Department CostValue-added $fill in the blank 34 fill in the blank 35 % Non-value-added fill in the blank 36 fill in the blank 37 % Total $fill in the blank 38 fill in the blank 39 % 5. The company has 65% of its total costs as
.
costs represent 26% of the total costs.
costs are 9% of the total. There is only one activity classified as a(n)
cost.
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