Answer the Following Questions Using the Information Below

question 100

Multiple Choice

Answer the following questions using the information below:
LaCrosse Products has a budget of $900,000 in 2015 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,000 in variable costs. The new method will require $40,000 in training costs and $100,000 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 150,000 units.
Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $50,000. 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.
-What is the net change in the budget for prevention costs if the procedures are automated in 2015? Will management agree with the changes?

• A) $60,000 decrease, yes
• B) $60,000 increase, yes
• C) $140,000 increase, no
• D) $80,000 decrease, yes

Explain the significance of the minimum points on average total cost and average variable cost curves.

Understand the concept of perfect competition and the theoretical existence of such a market.

Understand the different types of observational research methods and their applications.

Identify and differentiate between systematic observation and naturalistic observation.

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Definitions:

Selling and Administrative Expenses

Costs related to the selling of products and the general administration of a business.

Differential Income

The difference in income between two alternative decisions or scenarios, used in managerial decision-making to determine the better financial option.

Variable Cost

Expenses that change in proportion to the amount of goods produced or the volume of sales.

Differential Analysis

A financial technique used to compare the costs and benefits of alternative business decisions.