Question

3.

Use Pareto analysis to investigate the quality losses at Beechware Software Corp. The quality losses data can be sorted into categories, from high to low dollar losses, as shown in the table below.

Category                                                        Annual Loss

Rework costs                                                  $153,000

Rejected disks (loaded)                                      22,950

Rejected disks (blank)                                        13,770

Inspection costs (extra)--incoming                    104,040

Inspection costs (extra)--outgoing                      49,725

Customer returns                                            275,400

Training and system improvement costs            21,420

System downtime                                               67,320

Total Quality Costs                                         707,625

Answer 1

Statement showing % of each cost to total cost

Category	Amount	%
Customer returns	275,400	38.9%
Rework costs	153,000	21.6%
Inspection costs (extra)--incoming	104,040	14.7%
System downtime	67,320	9.5%
Inspection costs (extra)--outgoing	49,725	7.0%
Rejected disks (loaded)	22,950	3.2%
Training and system improvement costs	21,420	3.0%
Rejected disks (blank)	13,770	1.9%
Total	707,625

A statistical technique used for selection of limited number of tasks that can produce significant overall effect is called Pareto analysis. It follows 80/20 rules. Ie by performing 20% work one can reduce cost upto 80%

Thus one need to focus on

Customer returns

Rework costs

Inspection costs (extra)--incoming

System downtime