Answer the Following Questions Using the Information Below

question 19

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.
-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)$500 000 decrease
• B)$200 000 decrease
• C)$10 000 increase
• D)$320 000 decrease

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Definitions:

Anti-Pollution Standards

Regulations designed to limit or control the release of pollutants into the environment to protect ecological and human health.

Low Wage Workers

Individuals employed in job positions that pay less than the median wage of the labor market.

Profits

Financial gains obtained when the revenues earned from business activities exceed the expenses, costs, and taxes needed to sustain those activities.

Underdeveloped Countries

Nations characterized by low levels of economic productivity, income, and technological sophistication, often accompanied by poor standards of living.