Each unit of a product requires 5 components.The average number of components is 5.50 due to component failure.Purchasing higher quality components can reduce the average number of components to 5 per unit.The cost per component is $450.Calculate the reduction in failure costs per unit due to purchasing higher quality components.
A) $43
B) $350
C) $175
D) $225
E) $372

Question

Quizplus · Accepted Answer

Reduction in failure costs per unit = (Average number of components required prior to the purchase of higher quality components - Average number of components required after the purchase of higher quality components) × Cost per component
Reduction in failure costs per unit = (5.50 components - 5.00 components) × $450 = $225

Each Unit of a Product Requires 5 Components