M6 CONNECT Homework - Ch 12 Saved Help Save & Exit Submit Check my work 4 Mercury, Incorporated, 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. 6 A year ago, the company's cell phones had been ranked low in product quality in a consumer survey. Shocked by this result, Jorge points 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, X 02:37:10 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 Book 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." In References 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, Incorporated Quality Cost Report (in thousands) Last Year This Year Prevention costs: Machine maintenance $ 350 $ 150 Training suppliers 7 15 Quality circles 23 70 Total prevention cost 380 235 Appraisal costs: Incoming inspection 55 28 Final testing 170 84 Total appraisal cost 225 112 Internal failure costs: Rework 140 66 Scrap 70 60 Total internal failure cost 210 126 External failure costs: Warranty repairs 76 25 Customer returns 280 85 Total external failure cost 356 110 Total quality cost $ 1,171 $ 583 Total production cost $ 4,250 $ 4,650 As they were reviewing the report, Elsoe asked Tran what he now thought of the quality improvement program. Tran replied. "I'm relieved that the new quality improvement program hasn't 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." Mc Graw M6 CONNECT Homework - Ch 12 Saved Help Save & Exit Submit Check my work 4 As they were reviewing the report, Elsoe asked Tran what he now thought of the quality improvement program. Tran replied. "I'm relieved that the new quality improvement program hasn't 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." 6 points Required: 1. Expand the company's quality cost report by showing the costs in both years as percentages of both total production cost and total 0237:02 quality cost. (Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).) Mercury, Incorporated Quality Cost Report Book (in thousands) Last Year This Year In Percentage of Percentage of Percentage of Percentage of Amount Total Production Total Quality Amount Total Production Total Quality References Cost Cost Cost Cost Prevention costs Machine maintenance $ 350 $ 150 Training suppliers 7 15 Quality circles 23 70 Total prevention costs 380 235 Appraisal costs: Incoming inspection 55 28 Final testing 170 84 Total appraisal costs 225 112 Internal failure costs Rework 140 66 Scrap 70 60 Total internal failure costs 210 126 External failure costs Warranty repairs 76 25 Customer returns 280 85 Total external failure costs 356 110 Total quality cost $ 1,171 $ 583 Total production cost $ 4,250 $ 4,650 Mc Graw