News Technology, Inc., manufactures computerized laser printing equipment used by newspaper publishers throughout North America. In recent years, the company€™s market share has been eroded by stiff competition from Asian and European competitors. Price and product quality are the two key areas in which companies compete in this market.
Ben McDonough, News Technology€™s president, decided to devote more resources to the improvement of product quality after learning that his company€™s products had been ranked fourth in product quality in a recent survey of newspaper publishers. He believed that the company could no longer afford to ignore the importance of product quality. McDonough set up a task force which he headed to implement a formal quality-improvement program. Included on the task force were representatives from engineering, sales, customer service, production, and accounting, because McDonough believed this was a companywide program and all employees should share the responsibility for its success.

After the first meeting of the task force, Sheila Hayes, manager of sales, asked Tony Reese, the production manager, what he thought of the proposed program. Reese replied, €œI 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 don€™t like my annual income to be based on a decrease in quality costs; there are too many variables that we have no control over!€
News Technology€™s quality-improvement program has now been in operation for 18 months, and the following quality cost report has recently been issued. As they were reviewing the report, Hayes asked Reese what he thought of the quality program now. €œThe work is really moving through the Production Department,€ replied Reese. €œWe used to spend time helping the Customer Service Department solve their problems, but they are leaving us alone these days. I have no complaints so far. I€™ll be anxious to see how much the program increases our bonuses.€

Required:
1. Identify at least three factors that should be present for an organization to successfully implement a quality-improvement program.
2. By analyzing the cost of quality report presented, determine if News Technology€™s quality-improvement program has been successful. List specific evidence to support your answer.
3. Discuss why Tony Reese€™s current reaction to the quality-improvement program is more favorable than his initial reaction.
4. News Technology€™s president believed that the quality-improvement program was essential and that the firm could no longer afford to ignore the importance of product quality. Discuss how the company could measure the opportunity cost of not implementing the quality-improvement program.
(CMA,adapted)

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NEWS TECHNOLOGY, INC. Cost of Quality Report in thousands) Quarter Ended 6/30/x3 9/30/x3 12/31/x3 3/31/x4 6/30/x4 9/30/x4 Prevention costs Design review Machine maintenance... $ 19 101 $110 202 99 S 103 $94 160 16 215 215 190 2 Total. 240 362$ 338 310 294 270 Incoming inspection 45 $53 $57 S 36 34 $ 22 Total $ 205 $213 211$176$ 149 116 Rework$120 106 114 $ 88 78 $ 62 Total 188 $ 170 167 130 118 $ 102 Warranty repairs69 31 24 25 23 23 Appraisal costs: Final testing. 154 3 160 160 140 Internal fallure costs Scrap Extemal failure costs: Customer returns.. 262 122 116 Total quality cost Total production cost.. $ 331 282 146141 $110 103 $964 $1,027 862 757 $ 671 $ 591 $4,120 $4,540 $4,380 $4,650 $4,580 $4,510