Lucy Sawyer, who owns and operates Sawyer Toy Company, is a perfectionist. She believes literally in the "zero-defects" approach to quality control. Her favorite saying is, "You can't spend too much on quality." Even so, in 2014 her company experienced an embarrassing breach of quality that required the national recall of a defective product. She vowed never to repeat the experience and instructed her staff to spend whatever it takes to ensure that products are delivered free of defects in 2015. She was somewhat disappointed with the 2015 year-end quality cost report shown here.

Although external failure costs had declined, they remained much higher than expected. The increased inspections had identified defects that were corrected, thereby avoiding another recall; however, the external failure costs were still too high. Ms. Sawyer responded by saying, "We will have to double our efforts." She authorized hiring additional inspectors and instructed her production supervisors to become more vigilant in identifying and correcting errors.
Required
Assume that you are the chief financial officer (CFO) of Sawyer Toy Company. Ms. Sawyer has asked you to review the company's approach to quality control. Prepare a memo to her that evaluates the existing approach, and recommend changes in expenditure patterns that can improve profitability as well as increase the effectiveness of the quality control system.

Transcribed Image Text:

2014 2015 $ 80,000 430,000 560,000 21000 $1,280,000 $120,000 240,000 Prevention costs Appraisal costs Internal failure costs External failure cost Total $820,000