Question

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 activity analysis revealed the following:
Activities Activity Cost
Correcting invoice errors ............... $ 7,500
Disposing of incoming materials with poor quality ...... 15,000
Disposing of scrap ................. 27,500
Expediting late production ............... 22,500
Final inspection .................. 20,000
Inspecting incoming materials ............ 5,000
Inspecting work in process .............. 25,000
Preventive machine maintenance ............ . 15,000
Producing product .................. 97,500
Responding to customer quality complaints ......... 15,000
Total ...................... $ 250,000
The production process is complicated by quality problems, requiring the production manager to expedite production and dispose of scrap.

Instructions
1. Prepare a Pareto chart of the company activities.
2. 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 (producing product).
3. Determine the percentages of total costs that are value- and non- value- added.
4. Interpret the information.



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  • CreatedJune 27, 2014
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