Bergen Inc. produces cell phones at its London plant. 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.
Jerry Holman, Bergen€™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 2011 survey of telephone equipment users. He believed that Bergen could no longer afford to ignore the importance of product quality. Bergen€™s quality improvement program has now been in operation for two years, and the cost report shown below has recently been issued.
As they were reviewing the report, Sheila Haynes, manager of sales, asked Tony Reese, production manager, what he thought of the quality program. €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.€

REQUIRED
1. By analyzing the Cost-of-Quality Report presented, determine whether Bergen Inc.€™s quality-improvement program has been successful. List specific evidence to support your answer.
2. Jerry Holman believed that the quality-improvement program was essential and that
Bergen Inc. could no longer afford to ignore the importance of product quality. Discuss how Bergen could measure the opportunity cost of not implementing the quality improvement program.

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Semi-Annual Costs of Quality Report, Bergen Inc. (in thousands) 6/30/2012 12/31/2012 6/30/2013 12/31/2013 Prevention costs S 258 Machine maintenance Training suppliers Design reviews S 258 54 122 434 228 24 120 372 S 192 18 114 324 24 288 Total prevention costs Appraisal costs Incoming inspection Final testing 54 192 246 64 192 256 43 168 211 26 113 139 Total appraisal costs Internal failure costs Rework Scrap 144 82 226 106 50 156 74 48 122 127 Total internal failure costs 204 External failure costs 83 314 397 1,157 944 30 139 169 908 S5,580 Warranty repairs 37 301 338 $1,232 $5,448 28 96 124 709 S5,412 ustomer returns Total external failure costs Total quality costs Total production and sales