Mercury, Inc., produces cell phones at its plant in Texas. In recent years, the companys 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 companys cell phones had been ranked low in product quality in a consumer survey. Shocked by this result, Jorge Gomez, Mercurys president, initiated a crash 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! Im nervous about having my annual bonus based on a decrease in quality costs; there are too many variables that we have no control over.

Mercurys quality improvement program has now been in operation for one year. The companys most recent quality cost report is shown below.

Mercury, Inc.
Quality Cost Report
(in thousands)
	Last Year		This Year
Prevention costs:
Machine maintenance	$	210	$	140
Training suppliers		5		15
Quality circles		25		80
Total prevention costs		240		235
Appraisal costs:
Incoming inspection		30		22
Final testing		155		92
Total appraisal costs		185		114
Internal failure costs:
Rework		110		62
Scrap		62		50
Total internal failure costs		172		112
External failure costs:
Warranty repairs		62		23
Customer returns		252		85
Total external failure costs		314		108
Total quality cost	$	911	$	569
Total production cost	$	4,110	$	4,510

As they were reviewing the report, Elsoe asked Tran what he now thought of the quality improvement program. Tran replied. Im relieved that the new quality improvement program hasnt 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 companys 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
	Amount	Percentage of Total Production Cost		Percentage of Total Quality Cost		Amount	Percentage of Total Production Cost		Percentage of Total Quality Cost
Prevention costs:
Machine maintenance	$210		%		%	$140		%		%
Training suppliers	5					15
Quality circles	25					80
Total prevention costs	240	0.0		0.0		235	0.0		0.0
Appraisal costs:
Incoming inspection	30					22
Final testing	155					92
Total appraisal costs	185	0.0		0.0		114	0.0		0.0
Internal failure costs:
Rework	110					62
Scrap	62					50
Total internal failure costs	172	0.0		0.0		112	0.0		0.0
External failure costs:
Warranty repairs	62					23
Customer returns	252					85
Total external failure costs	314	0.0		0.0		108	0.0		0.0
Total quality cost	$911	0.0		0.0		$569	0.0		0.0
Total production cost	$4,110					$4,510