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	$ 370	$ 130
Training suppliers	9	10
Quality circles	21	85
Total prevention cost	400	225
Appraisal costs:
Incoming inspection	65	20
Final testing	150	88
Total appraisal cost	215	108
Internal failure costs:
Rework	110	70
Scrap	74	45
Total internal failure cost	184	115
External failure costs:
Warranty repairs	78	28
Customer returns	252	87
Total external failure cost	330	115
Total quality cost	$ 1,129	$ 563
Total production cost	$ 4,270	$ 4,670

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).

Mercury, Incorporated
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	$370			$130
Training suppliers	9			10
Quality circles	21			85
Total prevention costs	400			225
Appraisal costs:
Incoming inspection	65			20
Final testing	150			88
Total appraisal costs	215			108
Internal failure costs:
Rework	110			70
Scrap	74			45
Total internal failure costs	184			115
External failure costs:
Warranty repairs	78			28
Customer returns	252			87
Total external failure costs	330			115
Total quality cost	$1,129			$563
Total production cost	$4,270			$4,670