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Answer the Following Questions Using the Information Below

question 68

Multiple Choice

Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 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 $35 000.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.
-How much do external failure costs change if all the changes are as the new prevention procedures anticipated? Assume all units produced are sold and there are no ending inventories.

Definitions:

GAAP

Generally Accepted Accounting Principles (GAAP) are a collection of commonly followed accounting rules and standards for financial reporting.

IFRS

International Financial Reporting Standards, which are globally accepted guidelines for financial reporting established by the International Accounting Standards Board.

Perpetual Inventory System

This accounting practice immediately logs the sale or acquisition of inventory via computerized point-of-sale systems and software for managing enterprise assets.

Accounts Payable

Short-term debts or obligations a company owes to its suppliers or creditors for goods and services received.