Question: Osborn, Inc., produces cell phone equipment. Amanda
Osborn, Inc., produces cell phone equipment. Amanda Westerly, Osborn’s president, implemented a quality-improvement program that has now been in operation for 2 years. The cost report shown here has recently been issued. 
Required: 1. For each period, calculate the ratio of each COQ category to revenues and to total quality costs. 2. Based on the results of requirement 1, would you conclude that Osborn’s quality program has been successful? Prepare a short report to present your case. 3. Based on the 2015 survey, Amanda Westerly believed that Osborn had to improve product quality. In making her case to Osborn management, how might Westerly have estimated the opportunity cost of not implementing the quality-improvement program?
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Semi-Annual COQ Report, Osborn, Inc. (in thousands) 6/30/2016 12/31/2016 6/30/2017 12/31/2017 Prevention costs Machine maintenance $ 480 $ 480 $ 440 $ 290 Supplier training Design reviews Total prevention costs Appraisal costs Incoming inspections Final testing Total appraisal costs 21 90 45 35 30 218 198 196 531 788 683 521 109 124 89 55 327 327 302 202 436 451 391 257 Internal failure costs Rework 226 206 166 115 Scrap Total internal failure costs 127 124 68 65 353 330 234 180 External failure costs Warranty repairs 182 89 70 67 510 599 $2,168 $9,180 263 333 Customer returns 594 186 Total external failure costs 776 253 Total quality costs Total revenues $2,096 $8,220 $1,641 $9,260 $1,211 $9,050
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