Sparkle Fun produces cell phone covers for all make and models of cell phones. Sparkle Fun Sells
Question:
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
Cost Accounting A Managerial Emphasis
ISBN: 978-0133428704
15th edition
Authors: Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan