Bergen Inc. produces cell phones at its London plant. In recent years, the company’s market share has been eroded by stiff competition from Asian and European competitors. Price and product quality are the two key areas in which companies compete in this market.
Jerry Holman, Bergen’s president, decided to devote more resources to the improvement of product quality after learning that his company’s products had been ranked fourth in product quality in a 2011 survey of telephone equipment users. He believed that Bergen could no longer afford to ignore the importance of product quality. Bergen’s quality improvement program has now been in operation for two years, and the cost report shown below has recently been issued.
As they were reviewing the report, Sheila Haynes, manager of sales, asked Tony Reese, production manager, what he thought of the quality program. “The work is really moving through the Production Department,” replied Reese. “We used to spend time helping the Customer Service Department solve their problems, but they are leaving us alone these days.”
1. By analyzing the Cost-of-Quality Report presented, determine whether Bergen Inc.’s quality-improvement program has been successful. List specific evidence to support your answer.
2. Jerry Holman believed that the quality-improvement program was essential and that
Bergen Inc. could no longer afford to ignore the importance of product quality. Discuss how Bergen could measure the opportunity cost of not implementing the quality improvement program.