Answer the Following Questions Using the Information Below

question 8

Multiple Choice

Answer the following questions using the information below:
Nurioopta Products has a budget of $900 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $65 000 in variable costs.The new method will require $24 000 in training costs and $110 000 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 170 000 units.
Appraisal costs for the year are budgeted at $600 000.The new prevention procedures will save appraisal costs of $30 000.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.
-How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

• A)$137 700 decrease
• B)$243 000 decrease
• C)$137 700 increase
• D)None of these answers are correct.

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Definitions:

Planning Budget

A planning budget is formulated prior to a budget period and is based on management's objectives, serving as a guide for financial planning and performance evaluation.

Flights

Refers to scheduled air travel trips or could imply the launching or operation of aircraft.

Facility Expenses

Costs associated with operating and maintaining physical buildings or structures used in the production of goods or services.

Spending Variance

The difference between the actual amount spent and the budgeted or expected amount, which can be favorable or unfavorable.