Wailai Macadamia Confectioners is a maker of fine candies and chocolates. The company’s founder believes that production has become less well controlled in recent months, resulting in a decrease in overall quality and a growing tide of customer dissatisfaction. Nimi Naoro, quality control manager, is also concerned but she believes that the company is being sufficiently proactive to combat most quality concerns. She asks the controller to accumulate any data that might relate to the company’s current quality control efforts. The following data are provided to Nimi:
Product refunds due to quality guarantee claims ........... $ 60,000
Product liability claim (one lawsuit that was settled) ........ 100,000
Rework costs ............................ 300,000
Quality training ........................... 152,500
Inspection of incoming ingredients .................. 450,000
Statistical process control ....................... 325,000
Spoilage of chocolates, candies, and ingredients .......... 150,000
Product quality audits ........................ 237,500
Total annual sales.....................25,000,000

Required
Prepare a report that shows total prevention, appraisal, internal failure, and external failure costs. Based on the report, what recommendations would you make to the company? Be sure to consider the relation between quality costs and annual sales.