Answer the Following Questions Using the Information Below

question 40

Multiple Choice

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2012 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 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 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. 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 2012? Will management agree with the changes?

• A)$60,000 decrease, yes
• B)$60,000 increase, yes
• C)$140,000 increase, no
• D)$80,000 decrease, yes

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Definitions:

Job Enlargement

An approach to job design that increases the number and variety of tasks that an individual performs.

Scope

The extent of the area or subject matter that something deals with or to which it is relevant.

Telecommuting

Working from a remote location outside of the traditional office environment, typically facilitated by digital communication technologies.

Nontraditional Work Schedule

Employee work schedules that differ from the typical Monday to Friday, 9 to 5 routine.