Verizon Manufacturing Company Spent $400,000 in 2019 to Inspect Incoming

question 115

Multiple Choice

Verizon Manufacturing Company spent $400,000 in 2019 to inspect incoming components. Of the $400,000, $240,000 is fixed appraisal costs. The variable inspection cost is $0.20 per component. It takes two components for each finished product. Internal failure costs average $80 per failed unit of finished goods. In 2019, five percent of all completed items had to be reworked. External failure costs average $200 per failed unit. The company's average external failures are one percent of units sold. The company manufactures all units as ordered and carries no materials inventories. Seeking to decrease its total cost of quality (COQ) , Verizon contracted Quality-is-Free Consultants, Inc. (QIFC) to study ways to improve product quality and to reduce costs. Upon completion of the study, QIFC recommended automatic inspection equipment that requires a $60,000 annual cost for training and $150,000 for equipment rental and maintenance. The new equipment will eliminate $40,000 of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by 10 percent, and cut product failures by half. The company paid the consulting firm $100,000 in early January 2020 for the project. Verizon expects no changes in its operating level in the foreseeable future.

How much do you expect total external failure costs to change?

• A) $10,000 increase.
• B) $200,000 decrease.
• C) $320,000 decrease.
• D) $400,000 decrease.
• E) $800,000 decrease.

Recognize the defining features of culture and its role in human experience.

Identify the processes through which cultures change and innovate.

Comprehend the significance of nonverbal communication in cultural expression.

Analyze the impact of historical and social events on national ideologies and cultural values.

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Definitions:

Joint Venture

A business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task or business activity.

Fair Value

A valuation method that approximates the amount for which an asset could be bought or sold in a current transaction between participants at arm's length.

Book Value

The net value of an asset or liability according to its balance sheet account balance, taking into account the cost of the asset and accumulated depreciation.

Unrealized Gain

A profit that exists on paper resulting from an investment that has increased in value but has not yet been sold.