We use standard AQL sampling for the QC. So for the lot size of 500 the correct sample size is 50 units for the general inspection level II. The acceptance criteria for AQL level 1.5 is accept at 2 but reject at 3 failures. So the lot was rejected.
100% sampling is neither required (due to online QC in the production line) nor does it give significantly more confidence that there are no defects (AQL sampling is already at 95% confidence level that the defect rate is under 1.5%). This is actually tightened now from 2.5 that we used earlier, which has resulted in 2.7% return rate (refund included) but only 1.9% defect rate at the moment from what I have seen. It’s still not very good for day-0 defect rate but it’s not unheard for a first shipment.
( Also from what I’ve heard if the reworked lot also doesn’t pass AQL then they will do 100% check and pick the passing units for shipment. )