LaCrosse Products has a budget of $902,000 in 2020 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $80,200 in variable costs. The new method will require $40,300 in training costs and $110,000 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 158,000 units.

Appraisal costs for the year are budgeted at $609,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $18 per failed unit of finished goods. During 2019, 2% of all completed items had to be reworked. The proposed changes will cut the internal failure rate by

onethird.

External failure costs average $54 per failed unit. The company's average external failures average 2% of units sold. The new proposal will reduce this rate by 45%. Assume all units produced are sold and there are no ending inventories.

What is the net change in the budget for prevention costs if the procedures are automated in 2020? Will management agree with the changes?

Question content area bottom

Part 1

A.

$70,100 increase, yes

B.

$70,100 decrease, yes

C.

$80,200 decrease, yes

D.

$150,300 increase, no