Net change in the budget of prevention costs

Reference no: EM13150834

Regal Products has a budget of $900,000 in 2010 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $60,000 in variable costs. The new method will require $18,000 in training costs and $120,000 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 150,000 units.

Appraisal costs for the year are budgeted at $600,000. The new prevention procedures will save appraisal costs of $30,000. Internal failure costs average $15 per failed unit of finished goods. The internal failure rate is expected to be 3% of all completed items. The proposed changes will cut the internal failure rate by one-third. Internal failure units are destroyed. External failure costs average $54 per failed unit. The company's average external failures average 3% of units sold. The new proposal will reduce this rate by 50%. Assume all units produced are sold and there are no ending inventories.

i. What is the net change in the budget of prevention costs if the procedures are automated in 2010? Will management agree with the changes?

ii. How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase?

iii. How much will internal failure costs change if the internal product failures are reduced by 50% with the new procedures?

iv. How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

v. 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?

Reference no: EM13150834

Questions Cloud

Basics of job-order costing system : In a job-order costing system, the entry to record depreciation on manufacturing equipment would include:

Explain is reasoning correct to get a result : He gets a result of 1.5. He then rounds the result to 2, saying that it is not possible to get 1.5 girls when three babies are born. Is this reasoning correct? Explain.

Explain water saturated with o2 is heated : What volume of O2, measured at 25C and 1.00atm, is expelled when 425ml of water saturated with O2 is heated from 0 to 25C?

How is mitosis useful in any organism : List and then briefly describe two different processes that occur during the sexual life cycle that increase the genetic diversity of offspring.

Net change in the budget of prevention costs : What is the net change in the budget of prevention costs if the procedures are automated in 2010? Will management agree with the changes?

Indicate the stereochemistry of the product formed : Draw (S)-3-hexanol, then indicate the stereochemistry of the product formed when it is treated with each of the following reagents

How many mistakes can be made success rate : Some of these items are not up to quality specifications and have to be thrown out. At this rate, how many mistakes can be made while maintaining an acceptable success rate?

Predict the products of the reaction chromic acid and pcc : Predict the products of the reaction between each of the following compounds and both chromic acid and PCC. a) 2-methyl-2-butanol

How does a typical rna binding protein bind rna : How does a typical RNA binding protein bind RNA? Address the following in your answer- Why is protein-RNA recognition not the same protein-DNA recognition?

User Account

All Pages