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:
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 VA/NVA Correcting invoice errors $28,620 Disposing of incoming materials with poor quality 23,850 Disposing of scrap 66,780 Expediting late production 57,240 Final inspection 47,700 Inspecting incoming materials 9,540 Inspecting work in process 52,470 Preventive machine maintenance 33,390 Producing product 133,560 Responding to customer quality complaints 23,850 Total $477,000
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?
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 $ %
5. The department has 42% of its total costs as . costs represent 31% of the total costs. This means there is opportunity for cost savings. costs represent 11% of the total department costs.
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:
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 | VA/NVA | |
| Correcting invoice errors | $28,620 | |||
| Disposing of incoming materials with poor quality | 23,850 | |||
| Disposing of scrap | 66,780 | |||
| Expediting late production | 57,240 | |||
| Final inspection | 47,700 | |||
| Inspecting incoming materials | 9,540 | |||
| Inspecting work in process | 52,470 | |||
| Preventive machine maintenance | 33,390 | |||
| Producing product | 133,560 | |||
| Responding to customer quality complaints | 23,850 | |||
| Total | $477,000 |
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?
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 | $ | % | ||
5. The department has 42% of its total costs as . costs represent 31% of the total costs. This means there is opportunity for cost savings. costs represent 11% of the total department costs.
Related questions
Cost of Quality Report
Meagher Solutions Inc. manufactures memory chips for personalcomputers. An activity analysis was conducted, and the followingactivity costs were identified with the manufacture and sale ofmemory chips:
a. Identify the cost of quality classificationfor each activity.
| Quality Activities | Activity Cost | Quality Cost Classification | |||
| Correct shipment errors | $150,000 | ||||
| Disposing of scrap | 95,000 | ||||
| Emergency equipment maintenance | 125,000 | ||||
| Employee training | 50,000 | ||||
| Final inspection | 80,000 | ||||
| Inspecting incoming materials | 60,000 | ||||
| Preventive equipment maintenance | 40,000 | ||||
| Processing customer returns | 90,000 | ||||
| Scrap reporting | 45,000 | ||||
| Supplier development | 15,000 | ||||
| Warranty claims | 250,000 | ||||
| Total | $1,000,000 | ||||
b. Prepare a cost of quality report. Assumethat the sales for the period were $4,000,000. If required, roundpercents to one decimal place.
| Meagher Solutions Inc. | |||
| Costof Quality Report | |||
| Quality Cost Classification | Quality Cost | Percent of Total Quality Cost | Percent of Total Sales |
| Prevention | $ | % | % |
| Appraisal | % | % | |
| Internal failure | % | % | |
| External failure | % | % | |
| Total | $ | % | % |
c. The category with the fewest number ofquality activities is . Nearly fifty percent of the qualityactivity costs are . The highest single cost is warranty claims,which is a(n) . Disposing of scrap, emergency equipmentmaintenance, and scrap reporting are all .
Julia, president of Roo Inc. has been concerned about the growthin costs over the last several years. Julia asked the controller toperform an activity analysis to gain a better insight into thesecosts. The activity analysis revealed the following: ActivityActivity Cost Correcting invoice errors (invoices have beenprinted-not mailed) $25,000 Disposing of scrap (defective units)39,000 Shipping late production with Federal Express (at companyâscost) 33,000 Final inspection 20,000 Inspecting work in process30,000 Preventative machine maintenance 18,000 Responding tocustomer quality complaints 18,000 Total $183,000 Using thisinformation prepare a cost of quality report (as suggested by thetemplate below).
Quality Cost Classification | Quality Cost | Percent of Total quality cost | Percent of total Sales |
|
Assume sales for the period were $750,000. Quality CostClassification Quality Cost Percent of Total quality cost Percentof total Sales Total
