ABC Corporation produces custom-made dashboards for international car manufacturers in Germany. It provides the following costing data:

Quantity Sold750,000Rework$35,000Selling Price per unit$8.50Scrap$2,500Prevention Costs$131,000Product Replacements Costs$31,000Appraisal Costs$25,000Lost of sales from Repeating Customers$88,750Improvement Costs$35,200Contribution Margin25%

A customer satisfaction survey suggests that an alarming number of car manufacturers were upset because the products did not meet their specifications, causing them to return and seek replacements. ABC Corporation decided to embark on Production improvement process which costs are provided in the table above. Following the production

improvement process, the following impacts are forecasted:

• Percentage decrease in Product Replacement Costs 65%
• Percentage decrease in Lost of sales from Repeating Customers 55%

You are required to:

a) Explain with proper numerical justifications whether ABC Corporation should continue with the production improvement process.

b) Calculate the prevention, appraisal, internal failure, and external failure costs as a percentage of total quality costs (CoQ) and as a percentage of sales before and after the change in the production process.

c) Provide your comments on your results in (b) above.