Answer the Following Questions Using the Information Below

question 57

Multiple Choice

Answer the following questions using the information below:
Cysco Corp has a budget of $1,200,000 in 2015 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $100,000 in variable costs. The new method will require $50,000 in training costs and $140,000 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 200,000 units.
Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $30 per failed unit of finished goods. The internal failure rate is expected to be 5% 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 $50 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.
-What is the net change in the budget of prevention costs if the procedures are automated in 2015? Will management agree with the changes?

• A) $100,000 decrease, yes
• B) $90,000 decrease, yes
• C) $100,000 increase, no
• D) $90,000 increase, yes

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Definitions:

Historical Significance

The importance assigned to an event, object, or person in history, based on its impact, influence, and consequences on the course of historical developments.

Theodore Roosevelt

The 26th President of the United States (1901-1909) known for his progressive policies, conservation efforts, and leadership of the Rough Riders during the Spanish-American War.

Republican Nomination

The process by which the Republican Party in the United States selects its candidate for a major political office, such as the presidency.

Progressive Party

A political party in the United States that advocated for social and political reform, most active in the early 20th century with leaders like Theodore Roosevelt.