Question

D.B. Smith Company produces machine tools. The company conducted a cost-of-quality study and found the following:

Cost Category		Amount
Quality equipment design	$	28,000
Scrap		332,000
Inspection and retest		336,000
Customer returns		85,000
Supplier quality surveys		7,000
Repair		70,000

What quality cost categories should each of these costs be associated with? What does a Pareto analysis reveal? The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Questions

1. Classifying the D.B. Smith Company cost elements into the appropriate cost-of-quality categories, calculate the total costs in each category and their percentages of the total and cumulative percentages. Round your answers for the total costs to the nearest dollar and round your answers for the percentages to two decimal places.

Quality Cost Category		Amount		Percent of Total		Cumulative Percentage
Internal failure		$		%		%
Appraisal		$		%		%
External failure		$		%		%
Prevention		$		%		%
Total		$		%

2. Choose the correct graph for the cost-of-quality categories.

Answer 1

The different cost categories are classified into 4 categories as follows:

Cost Category	Amount	Category
Quality equipment design	28,000	Prevention
Scrap	332,000	Internal failure
Inspection and retest	336,000	Appraisals
Customer returns	85,000	External failure
Supplier quality surveys	7,000	Appraisals
Repair	70,000	Internal failure

Hence we get

Internal failure cost = Repair + Scrap = 70,000 + 332,000 = 402000

Percentage of total for internal failure = 402000/ (402000 + 343000 +85000 + 28000) = 0.4685

Category	Amount	Percentage of total	Cumulative Percentage
Internal failure	402000	0.468531469	0.468531469
Appraisals	343000	0.3997669	0.868298368
External failure	85000	0.099067599	0.967365967
Prevention	28000	0.032634033	1

Plotting bar chart for individual category and line chart for cumulative percentage, we get

we can also plot a pie chart to analyze above data,