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Seved Assignment #4 (Chapter 17) 4 Destin Company produces water control valves, made of brass, that it sells primarily to builders for use in commercial

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Seved Assignment #4 (Chapter 17) 4 Destin Company produces water control valves, made of brass, that it sells primarily to builders for use in commercial real estate construction. These valves must meet rigid specifications (ie the quality tolerance is small). Volves that, upon inspection, get rejected are returned to the Casting Department that is, they are returned to stage 1 of the four stage manufacturing process. Rejected items are melted and then recast. As such, no new materials in Casting are required to rework these items. However, new materials must be added in the Finishing Department for all reworked valves. As the cost accountant for the company, you have prepared the following cost data regarding the production of a typical valve Cont Casting Finishing Inspection Packing Direct materials Total 6200 512 58 9 220 Direct labor 125 40 40 320 Variable manufacturing overhead 130 155 35 35 Allocated fixed overhead 75 05 110 30 350 5.520 $397 185 $ 163 51,245 355 The company, spurred by intense price pressures from foreign manufacturers, recently initiated a number of quality programs. As a result, the rejection rate for valves has decreased from 6.9% to 5.1% of annual output (equal in total to 20,000 units) The reduction in reject rates hos enabled the company to reduce its inventory holdings from $540,000 to $320,000. Destinostimates that the annual financing cost associated with inventory holdings is 11% Required: 1. What are the estimated manufacturing cost savings per year associated with the reduction in rework costs? 2. What are the annual financing cost savings associated with the reduction in inventory holdings? 3. Provide a dollar estimate of the total annual cost savings associated with the recently enacted quality improvements, (Do not round intermediate calculations.) 1. Estimated annual manufacturing cost savings 2 Annual financing cost savings 3. Total estimated savings

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