Premier Corp expects to spend $800,600 in 2017 in appraisal costs if it does not...
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Premier Corp expects to spend $800,600 in 2017 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receivingmethod, it will save $60,200 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,800 in training costs and an additional $150,800 in annual equipment rental.
Internal failure costs average $210 per failed unit of finished goods. During2016, 5% of all completed items had to be reworked. External failure costs average $450 per failed unit. Thecompany's average external failures are 1% of units sold. The company carries no endinginventories, because all jobs are on a per order basis and a justintime inventory ordering method is used.
What would be the change in the external failurebudget, if 600,800 units are used and assuming external failures are reduced by 10%.
A.
$320,240 decrease
B.
$40,030 increase
C.
$249,500 decrease
D.
$270,360 decrease
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