Answer the Following Questions Using the Information Below

question 63

Multiple Choice

Answer the following questions using the information below:
Tri-State Manufacturing expects to spend $800,000 in 2012 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 $80,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $120,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.
Internal failure costs average $160 per failed unit of finished goods. During 2011, 5% of all completed items had to be reworked. External failure costs average $400 per failed unit. The company's average external failures are 1% 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.
-How much will external failure costs change assuming 800,000 units of materials are received and that product failures with customers are cut in half with the new receiving method?

• A)$20,000 increase
• B)$400,000 decrease
• C)$640,000 decrease
• D)$800,000 decrease

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Definitions:

Pathology

The medical discipline that studies the causes, nature, and effects of diseases through the examination of body tissues, organs, bodily fluids, and autopsies.

Congestive Heart Failure

A chronic condition where the heart is unable to pump blood effectively, leading to fluid buildup in the body.

Leukemia

This is a cancer type that strikes both blood and bone marrow, characterized by an abnormal increase in white blood cells.

Immune

Protected or exempt from a disease.