Answer the Following Questions Using the Information Below

question 34

Multiple Choice

Answer the following questions using the information below:
Dylan Products has a budget of $1,200,000 in 2011 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 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 210,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% 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 $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. 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 2011? Will management agree with the changes?

• A)$100,000 decrease, yes
• B)$90,000 decrease, yes
• C)$190,000 increase, no
• D)$100,000 increase, yes

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Definitions:

Infrastructure

The fundamental facilities and systems serving a country, city, or area, including transportation, communication, utilities, and public services.

Precedent

A legal decision or case that establishes a principle or rule which courts may follow in future cases with similar issues.

Jurisdiction

The official power to make legal decisions and judgments, typically in the context of a geographic area or a specific type of legal issue.

Neighboring State

A state that shares a border or is in close proximity to another state.