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Question - Metropolitan Manufacturing expects to spend $400,000 in 20x4 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 $40,000 in fixed appraisal costs and variable costs of $0.40 per unit of finished product. The new method involves $60,000 in training costs and an additional $160,000 in annual equipment rental. It takes two units of material for each finished product.
How much will internal failure costs change, assuming 800,000 units of materials are received and that the new receiving method reduces the amount of unacceptable product units in the manufacturing process by 10%?
a. $20,000 increase
b. $25,000 decrease
c. $80,000 decrease
d. $160,000 decrease
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