Each unit of a product requires four components. The average number of components is 4.25 due to component failure. Purchasing higher quality components can reduce the average number of components to four per unit. The cost per component is $350. Calculate the reduction in failure costs per unit due to purchasing higher quality components.
A) $43.75
B) $350
C) $175
D) $87.50
E) $372

Question

Quizplus · Accepted Answer

Currently, for each unit, 4.25 components are required on average. This means that 0.25 components fail and need to be replaced, which results in an additional cost of 0.25 x $350 = $87.50 per unit due to component failure.

If higher quality components are purchased, the average number of components required per unit will reduce to 4, and there will be no additional cost due to component failure.

Therefore, the reduction in failure costs per unit due to purchasing higher quality components is $87.50.

Hence, the answer is D.

Each Unit of a Product Requires Four Components