Question

Chapter 01 Pre-Built Problems Help Save & Check my Mercury, Inc., 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 points foto 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. Skipped After the first meeting of the task force, Holly Elsce, 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. Mercury. Inc. Quality Cost Report in thousands) Last This $ 350 $ 150 Prevention costs: Machine maintenance ΤΣΟΠΑΠ ΒΕΡΡΑΔΟΓΙΟ Quality circles Total prevention cost Appraisal costs! Incoming inspection Final testing Total appraisal cost Internal failure conti 1112 126 Scrap Total Internal failure cost External failure coats Warranty repairs customer returns Total external failure cost Total quality cost Total production cost 110 583 $1,171 < Prey 6 of 6 Next >

Answer 1

	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	350	8.24%	29.89%	150	3.23%	25.73%
Training suppliers	7	0.16%	0.60%	15	0.32%	2.57%
Quality circles	23	0.54%	1.96%	70	1.51%	12.01%
Total prevention cost	380	8.94%	32.45%	235	5.05%	40.31%
Appraisal costs:
Incoming inspection	55	1.29%	4.70%	28	0.60%	4.80%
Final testing	170	4.00%	14.52%	84	1.81%	14.41%
Total appraisal cost	225	5.29%	19.21%	112	2.41%	19.21%
Internal failure costs:
Rework	140	3.29%	11.96%	66	1.42%	11.32%
Scrap	70	1.65%	5.98%	60	1.29%	10.29%
Total internal failure cost	210	4.94%	17.93%	126	2.71%	21.61%
External failure costs:
Warranty repairs	76	1.79%	6.49%	25	0.54%	4.29%
Customer returns	280	6.59%	23.91%	85	1.83%	14.58%
Total external failure cost	356	8.38%	30.40%	110	2.37%	18.87%
Total quality cost	1171	27.55%	100.00%	583	12.54%	100.00%
Total production cost	4250			4650