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: Activities Activity Cost Correcting invoice errors $11,250 Disposing of incoming materials with poor quality 9,000 Disposing of scrap 31,500 Expediting late production 27,000 Final inspection 22,500 Inspecting incoming materials 4,500 Inspecting work in process 22,500 Preventive machine maintenance 15,750 Producing product 67,500 Responding to customer quality complaints 13,500 Total $225,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Required: 1. 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? 2. 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 Value-Added/ Non-Value-Added Classification Correcting invoice errors $11,250 Disposing of incoming materials with poor quality 9,000 Disposing of scrap 31,500 Expediting late production 27,000 Final inspection 22,500 Inspecting incoming materials 4,500 Inspecting work in process 22,500 Preventive machine maintenance 15,750 Producing product 67,500 Responding to customer quality complaints 13,500 Total $225,000 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 Classification Activity Cost Percent of Total Department Cost Prevention $ % Appraisal % Internal failure % External failure % Not costs of quality % Total $ % 4. Determine the percentages of total department costs that are value-added and non-value-added. Activity Cost Percent of Total Department Cost Value-added $ % Non-value-added % Total $ % 5. The department has % of its total costs as non-value-added. Internal failure costs represent % of the total costs. This means there is significant opportunity for cost savings. External failure costs represent % of the total department costs.

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: Activities Activity Cost Correcting invoice errors $11,250 Disposing of incoming materials with poor quality 9,000 Disposing of scrap 31,500 Expediting late production 27,000 Final inspection 22,500 Inspecting incoming materials 4,500 Inspecting work in process 22,500 Preventive machine maintenance 15,750 Producing product 67,500 Responding to customer quality complaints 13,500 Total $225,000 The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap. Required: 1. 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? 2. 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 Value-Added/ Non-Value-Added Classification Correcting invoice errors $11,250 Disposing of incoming materials with poor quality 9,000 Disposing of scrap 31,500 Expediting late production 27,000 Final inspection 22,500 Inspecting incoming materials 4,500 Inspecting work in process 22,500 Preventive machine maintenance 15,750 Producing product 67,500 Responding to customer quality complaints 13,500 Total $225,000 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 Classification Activity Cost Percent of Total Department Cost Prevention $ % Appraisal % Internal failure % External failure % Not costs of quality % Total $ % 4. Determine the percentages of total department costs that are value-added and non-value-added. Activity Cost Percent of Total Department Cost Value-added $ % Non-value-added % Total $ % 5. The department has % of its total costs as non-value-added. Internal failure costs represent % of the total costs. This means there is significant opportunity for cost savings. External failure costs represent % of the total department costs.

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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Question

Pareto Chart and Cost of Quality Report for a Manufacturing Company

Activities	Activity Cost
Correcting invoice errors	$11,250
Disposing of incoming materials with poor quality	9,000
Disposing of scrap	31,500
Expediting late production	27,000
Final inspection	22,500
Inspecting incoming materials	4,500
Inspecting work in process	22,500
Preventive machine maintenance	15,750
Producing product	67,500
Responding to customer quality complaints	13,500
Total	$225,000

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

Required:

1. 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?

2. 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	Value-Added/ Non-Value-Added Classification
Correcting invoice errors	$11,250
Disposing of incoming materials with poor quality	9,000
Disposing of scrap	31,500
Expediting late production	27,000
Final inspection	22,500
Inspecting incoming materials	4,500
Inspecting work in process	22,500
Preventive machine maintenance	15,750
Producing product	67,500
Responding to customer quality complaints	13,500
Total	$225,000

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

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

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

5. The department has % of its total costs as non-value-added. Internal failure costs represent % of the total costs. This means there is significant opportunity for cost savings. External failure costs represent % of the total department costs.

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