At the beginning of the year, Molybdenum Company initiated an environmental cost reduction program. To help assess the impact of the environmental cost reduction improvement program, the following data was collected for the current and preceding year: $\begin{array}{lrr}&\text { Freceding Year }&\text { Current Year }\
\text { Operating costs } & \$ 2,400,000 & \$ 2,400,000 \
\text { Training employees } & 30,000 & 48,000 \
\text { Inspecting processes } & 7,000 & 8,000 \
\text { Operating pollution control equipment } & 32,000 & 50,000 \
\text { Maintaining pollution equipment } & 60,000 & 28,000 \
\text { Devel oping environmental performance measures } & 10,000 & 12,000 \
\text { Cleaning up lake } & 36,000 & 24,000
\end{array}$ For the current year, internal failure costs are what percentage of operating costs?
A)4.25%
B)3.25%
C)2.00%
D)1.25%

Question

Quizplus · Accepted Answer

Internal failure costs are costs associated with defects found before the delivery of a product to the customer. In this case, internal failure costs include "Operating pollution control equipment" and "Maintaining pollution equipment." For the current year, these costs are $50,000 and $28,000, respectively, totaling $78,000. The operating costs are $2,400,000. Therefore, the internal failure costs as a percentage of operating costs are $\frac{78,000}{2,400,000} \times 100 = 3.25%$.

At the Beginning of the Year, Molybdenum Company Initiated an Environmental