Answer the following questions using the information below:
Strykerz Corp expects to spend $800,000 in 2015 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $60,000 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,000 in training costs and an additional $150,000 in annual equipment rental.
Internal failure costs average $160 per failed unit of finished goods. During 2014, 5% of all completed items had to be reworked. External failure costs average $400 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
-What is the net effect on appraisal costs for 2015,assuming the new receiving method is implemented and that 800,000 material units are received?
A) $120,000 increase
B) $170,000 decrease
C) $190,000 decrease
D) $400,000 increase

Question

Quizplus · Accepted Answer

The new method saves $60,000 in fixed appraisal costs and $0.50 per unit for 800,000 units, totaling $460,000 in savings. However, it incurs $140,000 in training and $150,000 in equipment rental, totaling $290,000 in additional costs. The net effect is a $170,000 decrease in appraisal costs ($460,000 savings - $290,000 costs).

Answer the Following Questions Using the Information Below