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3 Skipped PIM Industries Incorporated manufactures electronics components. Each unit costs $40 before the final test. The final test rejects, on average, 5% of
3 Skipped PIM Industries Incorporated manufactures electronics components. Each unit costs $40 before the final test. The final test rejects, on average, 5% of the 56,000 units manufactured per year. The average rejection rate of the industry is 3%. A consultant has determined that poor lighting is the most likely cause of this high rejection rate. It would cost $155,000 to install adequate lighting in the assembly department, which would be useful for 5 years. With adequate lighting (which will cost an additional $6,100 of operating costs per year), the firm expects to reduce its rejection rate to no higher than the industry average. Required: 1-a. What would be the projected five-year impact on operating profit? Five-year projected effect on operating income 1-b. Based solely on the relevant cost analysis you performed, should the firm install the lighting? Yes No
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