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What would be projected five-year impact on operating profit

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PIM Industries Inc. manufactures electronics components. Each unit costs $45 before the final test. The final test rejects, on average, 6% of the 41,000 units manufactured per year. The average rejection rate of the industry is 4%. A consultant has determined that poor lighting is the most likely cause of this high rejection rate. It would cost $115,000 to install adequate lighting in the assembly department, which would be useful for 5 years. With adequate lighting (which will cost an additional $5,300 of operating costs per year), the firm expects to reduce its rejection rate to no higher than the industry average.

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Problem 1: What would be the projected five-year impact on operating profit?

 

Reference no: EM132856554

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