Cysco Corp Has a Budget of $1,202,000 in 2017 for Prevention

question 139

Multiple Choice

Cysco Corp has a budget of $1,202,000 in 2017 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $100,000 in variable costs. The new method will require $50,000 in training costs and $149,000 in annual equipment costs. Management is willing to adjust the budget for an amount up to the cost of the new equipment. The budgeted production level is 205,000 units.
Appraisal costs for the year are budgeted at $505,000. The new prevention procedures will save appraisal costs of $50,600. Internal failure costs average $34 per failed unit of finished goods. The internal failure rate is expected to be 6% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $58 per failed unit. The company's average external failures average 2.7% of units sold. The new proposal will reduce this rate to 2%. Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated in 2017? Will management agree with the changes?

• A) $100,000 decrease, yes
• B) $99,600 decrease, yes
• C) $100,000 increase, no
• D) $99,600 increase, yes

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Definitions:

Enslaved People

Individuals who are forcibly taken or held as property and made to work without rights or freedom.

Domestic Work

Employment in private households, often performing tasks such as cleaning, cooking, and childcare.

Task Labor

A system of labor, mostly used in agricultural settings, where enslaved people were assigned specific tasks to complete each day.

Slave Families

Family units formed by enslaved people, often facing challenges such as separation due to sale by slave owners, yet demonstrating resilience and cultural continuity.