Mercury, Incorporated, 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, Incorporated
Quality Cost Report
(in thousands)
	Last Year	This Year
Prevention costs:
Machine maintenance	$ 70	$ 120
Training suppliers	0	10
Quality circles	0	20
Total prevention cost	70	150
Appraisal costs:
Incoming inspection	20	40
Final testing	80	90
Total appraisal cost	100	130
Internal failure costs:
Rework	50	130
Scrap	40	70
Total internal failure cost	90	200
External failure costs:
Warranty repairs	90	30
Customer returns	320	80
Total external failure cost	410	110
Total quality cost	$ 670	$ 590
Total production cost	$ 4,200	$ 4,800

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.

Note: Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).

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\begin{tabular}{|c|c|c|c|c|c|c|} \hline \multicolumn{7}{|c|}{ Mercury, Incorporated } \\ \hline \multicolumn{7}{|c|}{ Quality Cost Report } \\ \hline \multicolumn{7}{|c|}{ (in thousands) } \\ \hline & \multicolumn{3}{|c|}{ Last Year } & \multicolumn{3}{|c|}{ This Year } \\ \hline & Amount & \begin{tabular}{c} Percentage of \\ Total Production \\ Cost \end{tabular} & \begin{tabular}{c} Percentage of \\ Total Quality \\ Cost \end{tabular} & Amount & \begin{tabular}{c} Percentage of \\ Total Production \\ Cost \\ \end{tabular} & \begin{tabular}{l} Percentage of \\ Total Quality \\ Cost \end{tabular} \\ \hline \multicolumn{7}{|l|}{ Prevention costs: } \\ \hline Machine maintenance & 70 & & & 120 & & \\ \hline Training suppliers & 0 & & & 10 & & \\ \hline Quality circles & 0 & & & 20 & & \\ \hline Total prevention costs & 70 & 0.0 & 0.0 & 150 & 0.0 & 0.0 \\ \hline \multicolumn{7}{|l|}{ Appraisal costs: } \\ \hline Incoming inspection & 20 & & & 40 & & \\ \hline Final testing & 80 & & & 90 & & \\ \hline Total appraisal costs & 100 & 0.0 & 0.0 & 130 & 0.0 & 0.0 \\ \hline \multicolumn{7}{|l|}{ Internal failure costs: } \\ \hline Rework & 50 & & & 130 & & \\ \hline Scrap & 40 & & & 70 & & \\ \hline Total internal failure costs & 90 & 0.0 & 0.0 & 200 & 0.0 & 0.0 \\ \hline \multicolumn{7}{|l|}{ External failure costs: } \\ \hline Warranty repairs & 90 & & & 30 & & \\ \hline Customer returns & 320 & & & 80 & & \\ \hline Total external failure costs & 410 & 0.0 & 0.0 & 110 & 0.0 & 0.0 \\ \hline Total quality cost & 670 & 0.0 & 0.0 & 590 & 0.0 & 0.0 \\ \hline Total production cost & 4,200 & & & 4,800 & & \\ \hline \end{tabular}