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. 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. Mercury, Inc Quality Cost Report (in thousands) This Last Year Year Prevention costs: Machine maintenance S 380 140 Training suppliers Quality circles Total prevention cost 4 15 26 90 410 245 Appraisal costs: Incoming inspection Final testing 45 22 160 90 205 112 Total appraisal cost Internal failure costs: Rework 120 72 76 60 Scrap Total internal failure cost 196 132 External failure costs: Warranty repairs 65 29 262 89 Customer returns Total external failure cost 327 118 $ 1,138 Total quality cost 607 s 4,280 Total production cost 4,680 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." V 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 This Year Percentage of Total Production Total Quality Cost Cost Percentage of Total Production Total Quality Cost Percentage of Percentage of Amount Amount Cost Prevention costs: % Machine maintenance 380 % 0% 140 % Training suppliers 4 15 Quality circles 26 90 Total prevention costs 410 0.0 0.0 245 0.0 0.0 Appraisal costs: Incoming inspection 45 22 Final testing 160 90 Total appraisal costs 205 0.0 0.0 112 0.0 0.0 Internal failure costs: Rework 120 72 Scrap 76 60 Total internal failure costs 196 0.0 0.0 132 0.0 0.0 External failure costs: Warranty repairs 65 29 Customer returns 262 89 Total extenal failure costs 327 0.0 0.0 118 0.0 0,0 Total quality cost Total production cost 1,138 0.0 0.0 607 0.0 0.0 4,280 4,680