Sparkle Fun produces cell phone covers for all make and models of cell phones. Sparkle Fun Sells 1,060,000 units each year at a price of $6 per unit and a contribution margin of 20%. The QC manager and controller have forecast the following additional cost to modify the production process.

Requirement: If the improvements result in a 60% decrease in product replacement cost and 50% decrease in customer returns, what is the impact on overall COQ and the company's operating income? what should Sparkle Fun do? Explain.

Prevention Cost $200,00

Appraisal Costs $140,000

Internal Failure Cost

Rework $450,000

Scrap $26,000

External Failure Cost

Product replacements $316,000

Lost Sales from customer returns. $770,000

Benefit of Quality Improvements Amount

Cost of making quality improvements

Net benefit ( Cost) of making quality improvements