Use the Information Below to Answer the Following Question(s)

question 193

Multiple Choice

Use the information below to answer the following question(s) .Dylan 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 $90,000 in variable costs.The new method will require $40,000 in training costs and $150,000 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 $50,000.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 will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?

• A)$168,000 decrease
• B)$126,000 decrease
• C)$ 84,000 decrease
• D)$ 84,000 increase
• E)$50,000 decrease

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Definitions:

Profits

The financial gain obtained when the revenue from business activities exceeds expenses, costs, and taxes.

Collusion

An agreement, usually secretive, between two or more parties to limit competition and manipulate prices for their benefit.

Quantity Output

The total amount of goods or services produced by a business, sector, or economy.

Noncooperative Behavior

Actions by firms that ignore the effects of those actions on the profits of other firms.