Response to the following problem:
The following information shows last year's quality-related costs for the Madrigal Company:
Item Amount
Quality engineering $600,000
Warranty claims 2,814,000
Product liability lawsuits 5,400,000
Research of customer needs 90,000
Maintenance of test equipment 420,000
Returned products 1,440,000
Rework costs 1,440,000
Quality training 150,000
Process control monitoring 1,200,000
Inspection of and testing of incoming materials 480,000
Repair costs in the field 1,020,000
Statistical process control 300,000
Product recalls 2,400,000
Waste 840,000
Net cost of scrap 762,000
Product quality audits 570,000
Downtime due to defects 150,000
Supplier certification 108,000
Total sales for the year were $120,000,000.
Required
(a) Prepare a cost-of-quality report grouping costs into prevention, appraisal, internal failure, and external failure. Also show costs as a percent of sales.
(b) Interpret the data and make recommendations to Madrigal's management.