Question

Mercury, Incorporated, produces cell phones at its plant in Texas. A year ago, a consumer survey ranked the company’s cell phones low in product quality. Shocked by this result, Jorge Gomez, Mercury’s president, 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. After working together for a year, the task force prepared the quality cost report shown below: Mercury, Incorporated Quality Cost Report (in thousands) Last Year This Year Prevention costs: Machine maintenance $ 74 $ 120 Training suppliers 0 14 Quality circles 0 24 Total prevention cost 74 158 Appraisal costs: Incoming inspection 24 44 Final testing 84 94 Total appraisal cost 108 138 Internal failure costs: Rework 54 134 Scrap 44 74 Total internal failure cost 98 208 External failure costs: Warranty repairs 94 34 Customer returns 324 84 Total external failure cost 418 118 Total quality cost $ 698 $ 622 Total production cost $ 4,400 $ 5,000 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. Note: Round your percentage answers to 1 decimal place (i.e 0.1234 should be entered as 12.3).

Answer 1

To obtain the required percentages of the quality costs, each category should be divided by the total production cost and the total quality cost for both years. The resultant fractions should then be multiplied by 100 to express them as percentages.

Step-by-step explanation:

The student's question involves an analysis of quality cost reports in the context of a business environment. To provide the requested percentages of both total production cost and total quality cost, we must first calculate the total production cost and total quality cost for both years. We then divide each of the cost categories (Prevention costs, Appraisal costs, Internal failure costs, and External failure costs) by the total production cost and the total quality cost, respectively, and multiply by 100 to get the percentages.

For instance, if the company's total quality cost last year was $698 thousand and the total production cost was $4,400 thousand, the Prevention cost percentage of total production cost would be calculated as (74/4400) x 100 and percentage of total quality cost would be (74/698) x 100.

Similarly, for this year with a total quality cost of $622 thousand and a total production cost of $5,000 thousand, the Prevention cost percentage of total production cost would be (158/5000) x 100 and the percentage of total quality cost would be (158/622) x 100. These calculations will be carried out for each cost category for both years.