Inspection Time for a Plant Is 10,000 Hours Per Year

question 164

Multiple Choice

Inspection time for a plant is 10,000 hours per year. The cost of inspection consists of salaries of four inspectors, totaling $60,000. Inspection also used supplies costing $3 per inspection hour. The company has a close to zero defect state and has eliminated the need for any inspection activity. Calculate the nonvalue-added cost of inspection per year.

• A) $30,000
• B) $60,000
• C) $90,000
• D) $120,000

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Definitions:

Discount Rate

In discounted cash flow examination, the discount rate is used to evaluate the contemporary value of future cash inflows.

Incremental Cost Approach

A decision-making process that focuses on the changes in total cost due to a change in activity or a decision.

Payback Period

The length of time required to recover the cost of an investment, calculated by dividing the initial investment by the annual cash inflow.

Discount Rate

The interest rate applied in determining the current valuation of future cash flows via discounted cash flow analysis.