Question

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 result of the activity analysis is summarized as follows:

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	$16,320		Appraisal	Non-value-added
Disposing of incoming materials with poor quality	12,240		Appraisal	Non-value-added
Disposing of scrap	48,960
Expediting late production	40,800
Final inspection	40,800
Inspecting incoming materials	8,160
Inspecting work in process	44,880
Preventive machine maintenance	28,560
Producing product	146,880
Responding to customer quality complaints	20,400
Total	$408,000

2. 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?

3. Use the activity cost information to determine the percentages of total department costs that are prevention, appraisal, internal failure, external failure, and not costs of quality. If required, round percentages to one decimal place.

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

4. Determine the percentages of total department costs that are value-added and non-value-added. If required, round percentages to one decimal place.

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

Answer 1

1)

Quality Cost	Activity Cost	Cost of Quality Classification	Value Added / Non-Value Added
Correcting Invoice Errors	$16320	External Failure	Non-Value Added
Disposing of incoming materials with poor quality	$12240	Internal Failure	Non-Value Added
Disposing of Scrap	$48960	Internal Failure	Non-Value Added
Expediting Late Production	$40800	Internal Failure	Non-Value Added
Final Inspection	$40800	Appraisal	Value Added
Inspecting Incoming Materials	$8160	Appraisal	Value Added
Inspecting work in Process	$44880	Appraisal	Value Added
Preventive Machine Maintenance	$28560	Prevention	Value Added
Producing Product	$146880	Not a Quality Cost	Value Added
Responding to customer quality complaints	$20400	External Failure	Non-Value Added
Total	$408000

3) Cost of Quality Report ;-

Quality Cost Classification	Quality Cost	% of Total Quality Cost
Prevention	$28560	7
Appraisal	$93840	23
Internal Failure	$102000	25
External Failure	$36720	9
Not a Quality Cost	$146880	36
Total	$408000	100

4)

Category	Amount($)	%
Non-Value added	138720	34
Value added	269280	66
Total	590000	100