Nazu, Inc., produces a popular brand of humidifier that is backed by a five-year warranty. In Year 1, Nazu began implementing a total quality management program that has resulted in significant changes in its cost of quality. Listed below is Nazu’s financial information relating to sales and quality for the past two years.

Instructions
a. Prepare a cost of quality report for Nazu covering Year 1 and Year 2. Your report should divide the above costs into the four categories of quality costs and include total dollar amounts for each category.
b. How have the total amounts of prevention and external failure costs changed over the two years? What are some possible explanations for these changes?
c. At Nazu, preventive maintenance has a direct effect on the repair costs associated with equipment breakdowns. Did the decrease in repair costs justify the increase in maintenance costs?
d. Why might Nazu’s estimate of lost sales remain the same despite the adoption of the total quality managementprogram?

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Year 1 Year 2 Sales revenue Warranty expense Product design Scrap Process reengineering Raw materials inspections . Product liability claims.. Rework Retums resulting from defects Supplier certification costs Preventive maintenance on equipment. Final inspection costs. Employee quality training Equipment breakdown repair costs Estimate of lost sales due to quality problems $600,000 $600,000 .. . -.. - .. .. 25,000 23,000 4,000 16,000 1,000 7,000 15,000 2,000 7,000 2,800 5,000 2,000 2,000 8,000 3,000 6,000 12,000 . .. .3,000 5,200 6,200 .3,000 6,400 600 1,200 12,000 1,400 9,000 12,000 .