Question

Dylan Products has a budget of $1,200,000 in 2015 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $90,000 in variable costs. The new method will require $40,000 in training costs and $150,000 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 210,000 units.

Appraisal costs for the year are budgeted at $500,000. The new prevention procedures will save appraisal costs of $50,000. Internal failure costs average $20 per failed unit of finished goods. The internal failure rate is expected to be 4% of all completed items. The proposed changes will cut the internal failure rate by one-half. Internal failure units are destroyed. External failure costs average $48 per failed unit. The company's average external failures average 2.5% of units sold. The new proposal will reduce this rate to 1%. Assume all units produced are sold and there are no ending inventories.


How much will appraisal costs change assuming that the new prevention methods reduce material failures by 30% in the appraisal phase?

Select one:

A. $84,000 decrease

B. $150,000 decrease

C. $50,000 decrease

D. $229,000 decrease

E. $50,000 increase

2 .The Taranto Company uses the high-low method to estimate it's cost function. The information for the current year is provided below:

	Machine-hours	Costs
Highest observation of cost driver	2,000	$225,000
Lowest observation of cost driver	1,000	$125,000

What is the constant for the estimating cost equation?

Select one:

A. $12,500

B. $125,000

C. $25,000

D. $225,000

E. $0

Hello,

Are you able to show the work for both questions?

Thanks,

Answer 1