Reference no: EM132945547

Question - Premier Corp expects to spend $800,600 in 2017 in appraisal costs if it does not change its incoming materials inspection method. If it decides to implement a new receiving method, it will save $60,200 in fixed appraisal costs and variable costs of $0.50 per unit of finished product. The new method involves $140,800 in training costs and an additional $150,800 in annual equipment rental.

Internal failure costs average $210 per failed unit of finished goods. During 2016, 5% of all completed items had to be reworked. External failure costs average $450 per failed unit. The company's average external failures are 1% of units sold. The company carries no ending inventories, because all jobs are on a per order basis and a just-in-time inventory ordering method is used.

What would be the change in the external failure budget, if 600,800 units are used and assuming external failures are reduced by 10%.

A. $320,240 decrease

B. $40,030 increase

C. $249,500 decrease

D. $270,360 decrease