Answer the following questions using the information below:
Mildura Products has a budget of $1 200 000 in 2018 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $75 000 in variable costs.The new method will require $24 000 in training costs and $145 000 in annual equipment costs.Management is willing to adjust the budget for an amount up to the cost of the new equipment.The budgeted production level is 210 000 units.
Appraisal costs for the year are budgeted at $500 000.The new prevention procedures will save appraisal costs of $35 000.Internal failure costs average $20 per failed unit of finished goods.The internal failure rate is expected to be 4% of all completed items.The proposed changes will cut the internal failure rate by one-half.Internal failure units are destroyed.External failure costs average $48 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
-Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment.What is the net impact of all the changes created by the preventive changes?
A)$(125 200)
B)$(176 200)
C)$176 200
D)$(270 200)

Question

Quizplus · Accepted Answer

The net impact of all the changes is calculated by considering savings in variable, appraisal, internal failure, and external failure costs, minus the new costs for training and equipment. Savings in variable costs are $75,000. Savings in appraisal costs are $35,000. The reduction in internal failure rate from 4% to 2% on 210,000 units saves (210,000 units * 2% * $20) = $8,400. The reduction in external failure rate from 2.5% to 1% on 210,000 units saves (210,000 units * 1.5% * $48) = $15,120. The total savings are $75,000 + $35,000 + $8,400 + $15,120 = $133,520. The new costs are $24,000 for training and $145,000 for equipment, totaling $169,000. The net impact is $133,520 - $169,000 = $(35,480). However, this calculation does not match any of the provided options, indicating a need to reevaluate the calculation or the interpretation of the question's details. Given the options and the information provided, the correct calculation should account for all the savings and costs correctly. The discrepancy suggests a misunderstanding in the calculation process or an error in the provided options.

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