Reference no: EM132611158

Moon Ltd produces cell phones at its plant in Moon River. In recent years, the company's market share has been eroded by stiff competition from competitors. 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, Dawn Major, Moon's managing director, initiated a crash effort to improve product quality. Major 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 Major believed that this was a company-wide program and that all employees should share the responsibility for its success.
• After the first meeting of the task force, Sun Grant, manager of the Marketing Department, asked Kelly Star, production manager, what he thought of the proposed program. Star 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."

Moon's quality improvement program has now been in operation for one year. The following are the relevant costs of the program:

                                                   This year                               Last year

Customer returns                       $80                                 $320

final testing                               90                                    80

Incoming inspection                     40                                  20

machine maintenance                 120                                  70

scrap                                       70                                  40

rework                                     130                                 50

training supplies                            10                                0

quality circles                             20                                0

warranty repairs                          30                              90

As they were reviewing the data, Grant asked Star what he now thought of the quality improvement program. Star 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

Question 1: Prepare the cost of quality report in good form.

Question 2: Analyze the report to determine if Moon's quality improvement program has been successful. List specific evidence to support your answer.

Question 3: Discuss whether you expect the improvement program as it progresses to continue to increase the workload in the Production Department.

Question 4: Dawn Major believed that the quality improvement program was essential and that Moon could no longer afford to ignore the importance of product quality. Discuss how Moon could measure the cost of not implementing the quality improvement program.