Mercury, Inc. Quality Cost Report (in thousands)   Last Year This Year Prevention costs:         Machine maintenance $ 340 $ 140 Training suppliers   6   10 Quality circles   24   75 Total prevention cost   370   225 Appraisal costs:         Incoming inspection   50   26 Final testing   165   82 Total appraisal cost   215   108 Internal failure costs:         Rework   130   64 Scrap   68   50 Total internal failure cost   198   114 External failure costs:         Warranty repairs   75   36 Customer returns   278   84 Total external failure cost   353   120 Total quality cost $ 1,136 $ 567 Total production cost $ 4,240 $ 4,640     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.”   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 quality cost.

Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter2: Introduction To Spreadsheet Modeling
Section: Chapter Questions
Problem 20P: Julie James is opening a lemonade stand. She believes the fixed cost per week of running the stand...
icon
Related questions
Question
100%

How do I resolved this problem?

Mercury, Inc., 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.

A year ago, the company’s cell phones had been ranked low in product quality in a consumer survey. Shocked by this result, Jorge 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, 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! 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.”

 

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, Inc.
Quality Cost Report
(in thousands)
  Last Year This Year
Prevention costs:        
Machine maintenance $ 340 $ 140
Training suppliers   6   10
Quality circles   24   75
Total prevention cost   370   225
Appraisal costs:        
Incoming inspection   50   26
Final testing   165   82
Total appraisal cost   215   108
Internal failure costs:        
Rework   130   64
Scrap   68   50
Total internal failure cost   198   114
External failure costs:        
Warranty repairs   75   36
Customer returns   278   84
Total external failure cost   353   120
Total quality cost $ 1,136 $ 567
Total production cost $ 4,240 $ 4,640
 

 

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.”

 

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 quality cost. (Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).)

 

 

 

 

 
 
 
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Customer focus
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, operations-management and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
Practical Management Science
Practical Management Science
Operations Management
ISBN:
9781337406659
Author:
WINSTON, Wayne L.
Publisher:
Cengage,
Operations Management
Operations Management
Operations Management
ISBN:
9781259667473
Author:
William J Stevenson
Publisher:
McGraw-Hill Education
Operations and Supply Chain Management (Mcgraw-hi…
Operations and Supply Chain Management (Mcgraw-hi…
Operations Management
ISBN:
9781259666100
Author:
F. Robert Jacobs, Richard B Chase
Publisher:
McGraw-Hill Education
Business in Action
Business in Action
Operations Management
ISBN:
9780135198100
Author:
BOVEE
Publisher:
PEARSON CO
Purchasing and Supply Chain Management
Purchasing and Supply Chain Management
Operations Management
ISBN:
9781285869681
Author:
Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, James L. Patterson
Publisher:
Cengage Learning
Production and Operations Analysis, Seventh Editi…
Production and Operations Analysis, Seventh Editi…
Operations Management
ISBN:
9781478623069
Author:
Steven Nahmias, Tava Lennon Olsen
Publisher:
Waveland Press, Inc.