Chapter 27, Problem 27.4APR

Pareto chart and cost of quality report for a service company

The administrator of Hope 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	$ 6,400
Verifying patient information	9,600
Assigning patients	12,800
Searching/waiting for doctor	8,000
Doctor exam	4,800
Waiting for transport	17,600
Transporting patients	16,000
Verifying lab orders	14,400
Searching for equipment	8,000
Incorrect labs	12,800
Lab tests	17,600
Counting supplies	19,200
Looking for supplies	8,000
Staff training	4,800
Total	$160,000

Instructions

1. Prepare a Pareto chart of the ER activities.

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.

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.

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

5. Interpret the information.