A small but important raw material is used in a special plastic in automobile bumpers. The raw material costs $0.50 per bumper. The plastic costs the bumper supplier $5 per bumper. The bumpers have a variable manufacturing cost of $25 each. XYZ Motor Company buys the bumpers from the bumper supplier for $40 each and assembles them into its autos. When a repair shop orders a replacement bumper, it buys bumpers for $100 each and charges the car owner $250, including labor, to replace it.

The original raw material has a bad batch that goes into 10,000 front bumpers. While the bad raw material originally costs $5,000, the problem is not discovered until all 10,000 cars have been sold. The government requires XYZ Motor Company to recall all the cars and have their front bumpers replaced. What is the closest estimate of the failure cost to XYZ Motor Company and its 10,000 customers?

a) $150,000, based on $400,000 minus $250,000 refunded by the bumper supplier b) $1 million, based on $100 per bumper for 10,000 cars c) $2 million, based on $150 per car plus other direct costs for 10,000 cars