Osborn, Inc., produces cell phone equipment. Amanda Westerly, Osborns president, decided to devote more resources to the

Osborn, Inc., produces cell phone equipment. Amanda Westerly, Osborn’s president, decided to devote more resources to the improvement of product quality after learning that her company had been ranked fourth in product quality in a 2011 survey of cell phone users. Osborn’s quality-improvement program has now been in operation for 2 years, and the cost report shown here has recently been issued.

Required
1. For each period, calculate the ratio of each COQ category to revenues and to total quality costs.
2. Based on the results of requirement 1, would you conclude that Osborn’s quality program has been successful? Prepare a short report to present your case.
3. Based on the 2011 survey, Amanda Westerly believed that Osborn had to improve product quality. In making her case to Osborn management, how might Westerly have estimated the opportunity cost of not implementing the quality-improvementprogram?

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Semi-Annual COQ Report, Osborn, Inc. (in thousands) 6/30/2012 12/31/2012 6/30/2013 12/31/2013 Prevention costs S 480 21 30 531 440 45 198 683 S 480 Machine maintenance Supplier training Design reviews 290 35 196 521 218 788 Total prevention costs Appraisal costs 109 124 Incoming inspections Final testing Total appraisal costs 451 391 Internal failure costs Rework Scrap 166 115 127 353 124 Total internal failure costs 180 External failure costs Warranty repairs Customer returns 182 89 510 67 186 70 776 $2096 $8 220 Total external failure costs Total quality costs Total revenues 2,168 9,180 1,64 $121 9,260 $9,050