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 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! 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	$	220	$	130
Training suppliers		6		20
Quality circles		24		85
Total prevention cost		250		235
Appraisal costs:
Incoming inspection		35		24
Final testing		160		82
Total appraisal cost		195		106
Internal failure costs:
Rework		120		64
Scrap		64		55
Total internal failure cost		184		119
External failure costs:
Warranty repairs		63		25
Customer returns		254		86
Total external failure cost		317		111
Total quality cost	$	946	$	571
Total production cost	$	4,120	$	4,520

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 Percentage of Total Production Percentage of Cost "Total Quality Cost This Year Percentage of Total Production Cost Amount Amount Percentage of Total Quality Cost 220 % $ % 1301 20 % IN Prevention costs: Machine maintenance Training suppliers Quality circles Total prevention costs Appraisal costs: Incoming inspection 24 250 0.0 0.0 235 0.0 0.0 TL 35 180 195 0.0 0.0 0.0 120 184 0.0 0.0 119 0.0 0.0 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 25 63 254 317 946 4,120 0.0 0. 0.0 . 03 $ 0.0 0.0 0 111 571 4,520 0.0 0.0 0 s