Pollenti Company Has Just Merged with Another Industrial Firm Whose

question 45

Multiple Choice

Pollenti Company has just merged with another industrial firm whose business had been failing. Pollenti immediately conducted a thorough study of the new company's work processes, and produced a report including the data shown below:
• A new inspection process is recommended to minimize defective raw materials. It would cost $12,000 to implement.
• Shoddy business practices are resulting in excessive warranty costs $15,000 more than normal due mainly to material failure.
• Reengineering of the assembly line will increase productivity. It would cost $18,000 to implement.
• Inefficient workplace design is costing $5,000 in unnecessary rework costs.
• Estimated amount of lost profits due to dissatisfied customers who turn to the competition is $80,000.
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Based on the above, what is the amount of external failure costs, if any, included here?

• A) $5,000
• B) $12,000
• C) $95,000
• D) Zero

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Definitions:

Demand

The quantity of a good or service that consumers are willing and able to purchase at various prices during a certain period of time.

Agricultural Commodities

Raw products derived from farming, ranching, and forestry which are traded on commodities markets, such as grains, livestock, and dairy products.

Income Elastic

Describes a situation where the demand for a good or service changes in response to changes in consumers' income levels.

Agricultural Products

Goods that are produced through farming and agriculture.