Premier Corp Expects to Spend $800,900 in 2017 in Appraisal

question 92

Multiple Choice

Premier Corp expects to spend $800,900 in 2017 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $60,500 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,500 in training costs and an additional $150,300 in annual equipment rental.
Internal failure costs average $250 per failed unit of finished goods. During 2016, 6% of all completed items had to be reworked. External failure costs average $450 per failed unit. The company's average external failures are 2% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
What would be the change in the external failure budget, if 600,300 units are used and assuming external failures are reduced by 12%.

• A) $48,054 increase
• B) $250,150 decrease
• C) $648,324 decrease
• D) $304,342 decrease

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Definitions:

Statement Of Income

A financial report that provides a summary of a company's revenues, expenses, and profits over a specific period of time, often referred to as a profit and loss statement.

Gross Profit

The financial performance metric that subtracts the cost of goods sold from total revenue, reflecting the efficiency of a company in managing its production and supply chain.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenue.

Multiple-Step Statement

A Multiple-Step Income Statement presents revenues and expenses through several sections, including operating and non-operating activities, thereby highlighting key components of income and expenditure.