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 Mercury, Incorporated Quality Cost Report) (in thousands) Last Year This Year $330 5 $ 130 20 25 90 360 240 45 24 160 BO Final testing Total appraisal cost 205 104 Internal failure costs: 120 62 Rework 66 55 Scrap 186 117 Internal failure costs: Prevention costs: Machine maintenance Training suppliers Quality circles Total prevention cost Appraisal costs: Incoming inspection Final testing Total appraisal cost Rework Mercury, Incorporated Quality Cost Report (in thousands) Last Year This Year $ 330 $ 130 5 20 25 90 360 240 45 24 160 80 205 104 120 62 Scrap 66 55 Total internal failure cost 186 117 External failure costs: Warranty repairs 74 341 Customer returns 276 83 Total external failure cost 350 117 Total quality cost $ 1,101 $578 Total production cost $ 4,230 $ 4,630 As they were reviewing the report. Elsoe asked Tran what he now thought of the quality improvement program. Tran replied relieved that the new quality improvement program hasn't hurt our bonuses, but the program has increased the workload in Production Department. It is true that customer returns are way down, but the cell phones that were returned by customers 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 quality cost (Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).) Amount Prevention costs Machine maintenance $ 330 Training suppliers 51 Quality circles Mercury, Incorporated Quality Cost Report (in thousands) Last Year Percentage of Total Production Cost Percentage of Total Quality Amount Cost This Year Percentage of Total Production Cost Percentage of Total Quality Cost (A 130 20 25 90 360 0.0 0.0 240 0.0 0.0 Total prevention costs Appraisal costs Incoming inspection: 45 24 Final testing 160 80 Total appraisal costs 205 00 0.0 104 0.0 0.0 Internal failure costs Rework 120 62 Scrap 66 55 Total internal failure costs 186 0.0 0.0 117 00 0.0 External failure costs: Warranty repairs 74 34 Customer returns 276 83 Total external failure costs 350 0.0 0.0 117 00 0.0 Total quality cost S 1,101 0.0 0.0 S 578 00 00 Total production cost 4.230 $ 4.630 Prev 3 of 7 Next >