Praise be to Allah.
This transaction that your sister wants to do, to exchange the damaged phone for an undamaged phone, and paying the difference to the company is a transaction that is permissible according to Islam. There is nothing wrong with it, because mobile phones do not come under the heading of the commodities in which it is stipulated that any exchange must be like-for-like in order to avoid riba. Therefore there is nothing wrong with exchanging a phone for a similar phone or one that is better than it, regardless of whether or not she pays an extra amount of money. In fact she is buying the new phone from them and paying for it by giving them the old phone plus this additional amount.
We have previously discussed the types of commodities in which it is haraam to give more in return for less (of the same commodity) in order to avoid riba, in fatwa no. 118149
And Allah knows best.