You may already have it. In the right panel you can see that there are 4 icons:
- A bag (here you will find items that you can wear).
- A couple of items like food (consumables)
- A hammer with an anvil (items to combine)
- And a book, click on the last one (quest items).
Now, you don't need to "handle over" the item to Sandy, just talk to her with the item in your inventory. That's all.