Answer the Following Questions Using the Information Below

question 2

Multiple Choice

Answer the following questions using the information below:
Barossa Manufacturing expects to spend $500 000 in 2018 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 $50 000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product.The new method involves $70 000 in training costs and an additional $170 000 in annual equipment rental.It takes four units of material for each finished product.
Internal failure costs average $80 per failed unit of finished goods.During 2013,5% of all completed items had to be reworked.External failure costs average $200 per failed unit.The company's average external failures is 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.
-What is the net effect on appraisal costs for 2018,assuming the new receiving method is implemented and that 800 000 material units are received?

• A)$20 000 increase
• B)$240 000 increase
• C)$220 000 decrease
• D)$20 000 decrease

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