Answer the Following Questions Using the Information Below

question 102

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.
-How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase?

• A) $140,000 decrease
• B) $60,000 increase
• C) $50,000 decrease
• D) $22,500 decrease

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Definitions:

Cognitive Map

A mental representation of one's physical environment, allowing for navigation, understanding spatial relationships, and planning routes.

Gestalt

An approach emphasizing that the whole of something is greater than its parts, used particularly in psychology to describe patterns and perceptions.

Insight

The ability to comprehend someone or something thoroughly and precisely.

Negative Reinforcement

A behavior reinforcement strategy where the removal of an unfavorable outcome or stimulus increases the likelihood of a behavior being repeated.