Mercury, Inc., 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 a crash 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, Inc.
Quality Cost Report
(in thousands)
	Last Year		This Year
Prevention costs:
Machine maintenance	$	290	$	160
Training suppliers		7		15
Quality circles		23		80
Total prevention costs		320		255
Appraisal costs:
Incoming inspection		50		26
Final testing		165		84
Total appraisal costs		215		110
Internal failure costs:
Rework		130		66
Scrap		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	$	1,081	$	615
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. 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. Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3). Mercury, Inc. 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 $290 % % $160 % % Training suppliers 7 15 Quality circles 23 80 Total prevention costs 320 255 Appraisal costs: Incoming inspection 50 26 Final testing 165 84 Total appraisal costs 215 110 Internal failure costs: Rework 130 66 Scrap 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 $1,081 $615 Total production cost $4,190 $4,590