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:ActivitiesActivity CostCorrecting invoice errors$8,500Disposing of income materials with poor quality16,000Disposing of scrap28,500Expediting late production21,500Final inspection19,000Inspecting incoming materials5,000Inspecting work in process25,000Preventive machine maintenance15,000Producing product95,500Responding to customer quality complaints15,000Total249,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Prepare a Pareto chart of the company activities. 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. 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. Determine the percentages of total costs that are value-added and non-value-added. Interpret the information.

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	$8,500
Disposing of income materials with poor quality	16,000
Disposing of scrap	28,500
Expediting late production	21,500
Final inspection	19,000
Inspecting incoming materials	5,000
Inspecting work in process	25,000
Preventive machine maintenance	15,000
Producing product	95,500
Responding to customer quality complaints	15,000
Total	249,000

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

Prepare a Pareto chart of the company activities.
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.
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.
Determine the percentages of total costs that are value-added and non-value-added.
Interpret the information.

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