Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality . Classify the activities into value-added and non-value-added activities.

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:
Activities Activity Cost
Correcting invoice errors $14,520
Disposing of incoming materials with poor quality 12,100
Disposing of scrap 36,300
Expediting late production 31,460
Final inspections 16,940
Inspecting incoming materials 4,840
Inspecting work in process 21,780
Preventive machine maintenance 16,940
Producing product 72,600
Responding to customer quality complaints 14,520
Total $242,000
The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap.

Required:

2. Classify the activities into prevention, appraisal, internal failure, external failure, and not costs of quality . 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 $14,520 External failure Non-value-added
Disposing of incoming materials with poor quality 12,100 Internal failure Non-value-added
Disposing of scrap 36,300 Internal failure Non-value-added
Expediting late production 31,460 Internal failure Non-value-added
Final inspection 16,940 Appraisal Value-added
Inspecting incoming materials 4,840 Appraisal Value-added
Inspecting work in process 21,780 Appraisal Value-added
Preventive machine maintenance 16,940 Prevention Value-added
Producing product 72,600 Not costs of quality value-added
Responding to customer quality complaints 14,520 External failure Non-value-added
Total $242,000

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 .
Quality Cost
Classification
Activity Cost Percent of Total
Department Cost
Prevention $ fill in the blank fill in the blank
%
Appraisal fill in the blank fill in the blank
%
Internal failure fill in the blank fill in the blank
%
External failure fill in the blank fill in the blank
%
Not costs of quality fill in the blank fill in the blank
%
Total $ fill in the blank fill in the blank
%
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 $ fill in the blank fill in the blank
%
Non-value-added fill in the blank fill in the blank
%
Total $ fill in the blank fill in the blank %

5.

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

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