Answer the Following Questions Using the Information Below

question 2

Multiple Choice

Answer the following questions using the information below:
Strykerz Corp expects to spend $800,000 in 2015 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 $60,000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,000 in training costs and an additional $150,000 in annual equipment rental.
Internal failure costs average $160 per failed unit of finished goods. During 2014, 5% of all completed items had to be reworked. External failure costs average $400 per failed unit. The company's average external failures are 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 would be the change in the external failure budget,if 600,000 units are used and assuming external failures are reduced by 10%.

• A) $40,000 increase
• B) $250,000 decrease
• C) $240,000 decrease
• D) $320,000 decrease

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Definitions:

Price Level

An indicator reflecting the average prices of goods and services in an economy at a given time, showcasing the cost of living and inflation.

Firms' Expectations

The outlook or anticipations of businesses regarding future economic conditions, sales, and profitability, which can influence their investment and production decisions.

Nominal Wage Rates

The amounts of money paid to workers before adjustments for inflation.

Price Level

A measure of the average prices of goods and services in an economy at a given time, often reflected in a price index.