Question
Premier Corp expects to spend $800,100 in 2020 in appraisal costs if it does not change its incoming materials inspection method. If it decides to
Premier Corp expects to spend $800,100 in 2020 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 $60,800 in fixed appraisal costs and variable costs of $0.50 per materials units received. The new method involves $141,000 in training costs and an additional $150,100 in annual equipment rental.Internal failure costs average $190 per failed unit of finished goods. During 2019, 4% of all completed items had to be reworked. External failure costs average $500 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
justintime
inventory ordering method is used.What is the net effect on appraisal costs for 2020, assuming the new receiving method is implemented and that 800,100 material units are received?
A.
$169,750 decrease
B.
$4,001 increase
C.
$291,100 decrease
D.
$1,520 increase
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