A4 Mercury, Incorporated, produces cell phones at its plant in Texas. In recent years, the company's market share has been eroded by stiffcompetition 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, JorgeGomez, Mercury's president, initiated an intense effort to improve product quality. Gomez set up a task force to implement a formalquality 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 acompanywide 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 thento be holding you and me responsible for cost improvements. I like to work with goals that I can see and count! I'm nervous abouthaving 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 isshown below.Prevention costs:Machine maintenanceTraining suppliersQuality circlesTotal prevention costAppraisal costs:Incoming inspectionFinal testingTotal appraisal costInternal failure costs:ReworkScrapTotal internal failure costExternal failure costs:Mercury, IncorporatedQuality Cost Report(in thousands)Warranty repairs.Customer returns.Total external failure costTotal quality costTotal production costPrevention costs:Machine maintenanceTraining suppliersQuality circlesTotal prevention costsAppraisal costs:Incoming inspectionFinal testingTotal appraisal costsInternal failure costs:ReworkScrapTotal internal failure costsExternal failure costs:As they were reviewing the report, Elsoe asked Tran what he now thought of the quality improvement program. Tran replied. "I'mrelieved that the new quality improvement program hasn't hurt our bonuses, but the program has increased the workload in theProduction Department. It is true that customer returns are way down, but the cell phones that were returned by customers to retailoutlets were rarely sent back to us for rework."Warranty repairsCustomer returnsTotal external failure costsTotal quality costTotal production costRequired:1. Expand the company's quality cost report by showing the costs in both years as percentages of both total production cost and totalquality cost.Note: Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).Amount$31092134060150210Last Year This Year$310$ 12091021340150622126015021072272344$ 1,106$4,21015062212702003096126704011072272344$ 1,106$ 4,210 $ 4,610Last YearPercentage ofTotal ProductionCost3080110$ 546Mercury, IncorporatedQuality Cost Report(in thousands)Percentage ofTotal QualityCostAmount$1201070200309612670401103080110$546$ 4,610This YearPercentage ofTotal ProductionCostPercentage ofTotal QualityCost

The quality cost report's main objective is to reduce the overall cost of quality by lowering the…

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. 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.

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. 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.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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