Chapter 12 Homework Saved Help Save & Exit Submit Check my work 4. Mercury, Inc., produces cell phones at its plant in Texas. In recent years, the company's market share has been eroded by stiff competition from overseas. Price and product quality are the two key areas in which companies compete in this market. 6 points eBook Print A year ago, the company's cell phones had been ranked low in product quality in a consumer survey. Shocked by this result, Jorge Gomez, Mercury's president, initiated an intense effort to improve product quality. Gomez set up a task force to implement a formal quality improvement program. Included on this task force were representatives from the Engineering, Marketing, Customer Service, Production, and Accounting departments. The broad representation was needed because Gomez believed that this was a companywide program and that all employees should share the responsibility for its success. After the first meeting of the task force, Holly Elsoe, manager of the Marketing Department, asked John Tran, production manager, what he thought of the proposed program. Tran replied, "I have reservations. Quality is too abstract to be attaching costs to it and then to be holding you and me responsible for cost improvements. I like to work with goals that I can see and count! I'm nervous about having my annual bonus based on a decrease in quality costs; there are too many variables that we have no control over." Mercury's quality improvement program has now been in operation for one year. The company's most recent quality cost report is shown below. References Mercury, Inc. Quality Cost Report (in thousands) Last Year This Year $ 350 7 23 380 150 15 70 235 2B Prevention costs: Machine maintenance Training suppliers Quality circles Total prevention cost Appraisal costs: Incoming inspection Final testing Total appraisal cost Internal failure costs: Rework Scrap Total internal failure cost External failure costs: 55 170 225 112 140 70 210 66 60 126 Check my work 38U 235 4 55 170 225 28 84 112 6 points Total prevention cost Appraisal costs Incoming inspection Final testing Tatal appraisal cost Internal failure costs: Rework Scrap Total internal failure cost External failure costs: Warranty repairs Customer returns Total external failure cost Total quality cost 140 70 210 66 60 126 eBook Print 76 25 280 85 356 110 $ 1,171 $ 583 $ 4,250 $ 4,650 References Total production cost As they were reviewing the report, Elsoe asked Tran what he now thought of the quality improvement program. Tran replied. "I'm relieved that the new quality improvement program hasn't hurt our bonuses, but the program has increased the workload in the Production Department. It is true that customer returns are way down, but the cell phones that were returned by customers to retail outlets were rarely sent back to us for rework." Required: 1. Expand the company's quality cost report by showing the costs in both years as percentages of both total production cost and total quality cost. (Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).) Mercury, Inc. Quality Cost Report (in thousands) Last Year Percentage of Percentage of Cost Total Production Total Quality Cost Amount This Year Percentage of Total Production Total Quality Cost Percentage of Cost Amount Prevention costs: Machine maintenance $ 350 % $ 150 Chapter 12 Homework i Saved Help S 4. (in thousands) Last Year Percentage of Percentage of Cost This Year Percentage of Total Production Cost Amount Total Production Total Quality Cost Amount Percentage of Total Quality Cost 6 points $ 350 % % $ 150 % % 7 15 eBook 23 70 Print 380 235 References 55 28 170 84 225 112 Prevention costs: Machine maintenance Training suppliers Quality circles Total prevention costs Appraisal costs: Incoming inspection Final testing Total appraisal costs Internal failure costs: Rework Scrap Total internal failure costs External failure costs: Warranty repairs Customer returns Total external failure costs Total quality cost Total production cost 140 66 70 60 210 126 76 25 280 85 356 110 583 $ 1,171 $ $ 4,250 $ 4,650