Mercury, Incorporated, 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. Prevention costs: Machine maintenance Training suppliers Quality circles Total prevention cost Appraisal costs: Incoming inspection Final testing Mercury, Incorporated Quality Cost Report (in thousands) Last Year This Year 80 $ 290 7 $166 15 23 320 255 50 26 165 84 215 110 Internal failure costs: Rework 130 66 78 60 Scrap Total internal failure cost 208 126 External failure costs: Warranty repairs Total appraisal cost Customer returns 70 28 268 96 Total external failure cost 338 124 $ 1,081 $ 615 Total quality cost Total production cost $ 4,190 $ 4,590 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 (l.e 0.1234 should be entered as 12.3).) Amount Mercury, Incorporated Quality Cost Report (in thousands) Last Year Percentage of Total Production Cost Percentage of Total Quality Cost Amount This Year Percentage of Total Production Cost Percentage of Total Quality Cost Prevention costs: Machine maintenance $ 290 Training suppliers 7 Quality circles 23 Total prevention costs 320 S 160 15 80 255 Appraisal costs: Incoming inspection 50 26 Final testing 165 84 Total appraisal costs 215 110 Internal failure costs: Rework 130 68 Rework Scrap 130 66 78 60 Total internal failure costs 208 126 External failure costs: Warranty repairs 70 28 Customer returns 268 96 Total external failure costs 338 124 Total quality cost S 1,081 S 615 Total production cost S 4,190 $ 4,590