Study the information provided below and answer the following question. INFORMATION Mosaic Textiles (Mosaic) is an apparel manufacturer in a Southern African country (the country is anonymized as SACX hereafter). Mosaic produces a range of high-end apparel which it sells to Truworld Limited (Truworld), a well-known retailer also domiciled in SACX. The apparels are the only products which Mosaic produces and Truworld is its only customer. Truworld has recently been affected by changes in customer purchasing preferences to buying clothes online and, as a result, is keen to reduce its inventory holding as a way of reducing its costs. Truworld has also found that it has an excess of goods which it must discount as consumer tastes appear to change more quickly than in the past. The chief executive officer (CEO) of Mosaic, Mrs. Cynthia Ndwandwe, has given you some tasks to undertake as the management accountant of Mosaic. Current purchasing policy Mosaic currently obtains its raw materials from four suppliers. Each of these suppliers operates differently in terms of the processes which they adopt in trading with Mosaic. Mosaic has been agreeable to this, as the quality of the raw material supplied has generally been acceptable. More recently, however, Mosaic has found reasons to question the accuracy and quality of the raw material delivered from one supplier. Additionally, another supplier now only despatches material to Mosaic in full-load quantities as it wishes to optimize the use of its delivery vehicles. Current production methods The performance metric at Mosaic for production efficiency is the number of apparels produced per period. Mosaics method of production is to produce individual clothes in long production runs which has helped to reduce setup costs and thus, maximize output. Staff working in the production department have their bonuses based on this metric. Mosaic has a practice of testing goods at the final stage of production and before they leave the factory. Goods which have not been produced according to required standards have traditionally been rejected at the end of the production process. Mosaics production control manager has indicated to you that the current production methods have been successful, as the company only has 6% of all its goods returned from Truworld for quality-related reasons. Just-in-time (JIT) Truworld would like to move to just-in-time (JIT) system of purchasing its goods from Mosaic. As a result, Mosaic is contemplating major changes to its working practices. Mosaics CEO has asked you, as the companys management accountant, to assess the changes which Mosaic will have to make in the areas of purchasing and production to continue supplying goods to Truworld on a JIT basis. Costs of Quality Mrs. Ndwandwe has also made available to you a cost of quality report which she believes addresses all relevant costs of quality. This report is shown in Table 1, below. She would like you to discuss the potential quality cost changes considering the proposed move to JIT. She has indicated that some of these costs have never been measured before and have been given financial values to help you to put together your report. In addition, she informed you that Essels current revenue is R90 million. Table 1: Table 1: R R % of revenue (R90m) Costs of Conformance: Prevention costs: Preventive maintenance 100 000 Total 100 000 0.11% Appraisal costs: Quality control supervisor 710 000 Quality audits 100 000 Total 810 000 0.90% Costs of non-conformance: Internal failure costs: Rework cost 2 540 000 Downtime due to quality problems 1 760 000 Scrap 1 350 000 Total 5 650 000 6.28% External failure costs: Cost of complaints from Truworld 2 900 000 Foregone contribution from lost sales* 1 900 000 Product recalls and cost of goods returned 4 100 000 Total 8 900 000 9.89% Grand total 15 460 000 17.18% * Foregone contribution from lost sales is an example of potential sales lost to Truworld due to problems related to production and delivery experienced by Mosaic Required: Study the information provided above and write a brief report on changes related to the costs of quality in response to the request of Mrs. Cynthia Ndwandwe, Mosaics CEO (Note: Your report should highlight Mosaics cost of conformance and the cost of non-conformance. Please note that marks will be awarded for the demonstration of skill in analysis and evaluation, scepticism, and commercial acumen in your answer)