Premier Corp expects to spend$800,500 in 2017 in appraisal costs if it does not change...
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Premier Corp expects to spend$800,500 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$60,100 in fixed appraisal costs and variable costs of$0.50 per materials units received. The new method involves$140,600 in training costs and an additional$150,000 in annual equipment rental.
Internal failure costs average$160 per failed unit of finished goods. During2016, 4% of all completed items had to be reworked. External failure costs average$430 per failed unit. Thecompany's average external failures are1% of units sold. The company carries no endinginventories, because all jobs are on a per order basis and ajust-in-time inventory ordering method is used.
What is the net effect on appraisal costs for2017, assuming the new receiving method is implemented and that800,500 material units arereceived?
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