Deck 19: Balanced Scorecard: Quality and Time

Question 1

One of the most direct financial measures of quality is the costs of quality.

Answer 1

True

Question 2

Spoilage,rework,scrap,and machine repairs are all examples of ________.

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Answer 2

C

Question 3

Process engineering is an example of ________.

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Answer 3

A

Question 4

Which of the following is true of ISO 9000?

A)It is a quality management system comprising different process improvement such as six sigma and lean manufacturing.
B)It is mandatory for all listed companies in US to get ISO certified.
C)It helps companies monitor,document,and certify the elements of their production processes that lead to quality.
D)It is a disciplined,data-driven,and statistical approach to improve the quality of products or services by identifying and removing the causes of defects.

Question 5

Product testing is an example of ________.

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 6

Monticello Corp manufactures expensive tables.Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly.An improperly varnished table is very expensive to correct.Inspection hours for the 5800 tables varnished in September totaled 2000 hours by 12 employees.Eight quarts of varnish were used,on average,for each table.The standard amount of varnish per table is nine quarts.The cost of inspection for September was equal to the budgeted amount of $40,300.
What is the inspection cost per unit? (Round the final answer to the nearest cent. )

A)$26.19
B)$6.95
C)$7.95
D)$18.99

Question 7

Which of the following is an opportunity cost?

A)lost sales
B)cost of production
C)marginal cost
D)cost of sales

Question 8

The costs of quality are the costs incurred ________.

A)to enhance large scale production
B)to prevent the production of a low quality product
C)due to defective and low quality product
D)because of warranties,normal spoilage,abnormal spoilage,and scrap

Question 9

Which of the following describes appraisal costs?

A)they are incurred to prevent the production of products that do not conform to specifications
B)they are incurred to detect which of the individual units of products do not conform to specifications
C)they are incurred on defective products before they are shipped to customers
D)they are incurred on defective products after they have been shipped to customers

Question 10

Quality is defined as the total features and characteristics of a product or a service made or performed according to specifications to satisfy customers at the time of purchase and during use.

Question 11

Process engineering is an example of ________.

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 12

Monticello Corp manufactures expensive tables.Its varnishing department is fully automated and requires substantial inspection to keep the machines operating properly.An improperly varnished table is very expensive to correct.Inspection hours for the 5800 tables varnished in September totaled 1700 hours by 10 employees.Eight quarts of varnish were used,on average,for each table.The standard amount of varnish per table is nine quarts.The cost of inspection for September was equal to the budgeted amount of $40,100.
The $40,100 represents a(n)________.

A)activity cost pool
B)possible cost allocation base
C)internal failure cost
D)work-in-process control

Question 13

Warranty repair cost is an example of which of the following?

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 14

Which of the following types of costs are incurred in precluding the production of products that do not conform to specifications?

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 15

Which of the following is a financial measure of quality?

A)operating income growth
B)percentage of highly satisfied customers
C)number of defective units shipped to customers as a percentage of total units shipped
D)interest costs

Question 16

Which of the following is considered a cost of quality?

A)external failure costs
B)opportunity costs
C)sunk costs
D)contingent liabilities

Question 17

ISO 9000 developed by the International Organization for Standardization is a set of five international standards for quality management.

Question 18

Which of the following best describes conformance quality?

A)it is the first step of a quality management system such as ISO 9000
B)it is the performance of a product or service according to design and product specifications
C)it is making the product according to design,engineering,and manufacturing specifications
D)it focuses on how a product meets customer needs and wants

Question 19

Conformance quality is the performance of a product or service relative to its design and product specifications.

Question 20

Rework is an example of ________.

A)prevention costs
B)appraisal costs
C)internal failure costs
D)external failure costs

Question 21

Dawn and Kim just bought a bed and breakfast inn at a very attractive price.The business had been doing poorly.Before they reopened the inn for business,they attended a seminar on operating a high quality business.Now that they are ready to open the inn,they need some advice on quality costs and management.
Required:
Identify four categories of quality costs.In addition,identify three items that would be classified in each of the categories.

Question 22

Costs of Quality (COQ)are classified into four categories: prevention costs,appraisal costs,opportunity costs,and sales costs.

Question 23

Warranty costs is an example of external failure costs.

Question 24

In the banking industry,depositing a customer's check into the wrong bank account is an example of quality of design failure.

Question 25

Which of the following is a graph of a series of successive observations of a particular step,procedure,or operation taken at regular intervals of time?

A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)fishbone diagrams

Question 26

Costs of quality (COQ)reports usually consider opportunity costs.

Question 27

Appraisal costs are costs incurred to preclude the production of products that do not conform to specifications.

Question 28

What is it that a statistical quality control chart does?

A)it shows a graph of a series of random events of a process
B)it plots each observation relative to specified ranges that represent the expected distribution
C)it plots control observations over various periods of time
D)it plots only those observations outside specified limits

Question 29

A quality improvement program is very costly to implement across a large corporation.Why do they do it? Explain.

Question 30

An example of a nonfinancial measure for customer satisfaction is ________.

A)number of defective units shipped as a percentage of total units shipped
B)warranty claims by customers
C)liability claims incurred to the company
D)rework costs due to inefficiency

Question 31

The two basic aspects of quality are quality of design and conformance quality.Define and give an example of each.

Question 32

As per control charts,random variations would most likely occur when ________.

A)there is a sudden increase in production
B)chance fluctuations in the speed of equipment cause defective products to be produced
C)defective products are produced as a result of a systematic problem
D)chance fluctuations in the speed of the equipment cause defective products to be produced

Question 33

When evaluating alternatives to improve quality,both the relevant benefits as well as the relevant costs should be considered.

Question 34

ISO 9000 are standards designed to encourage organizations to develop environmental management systems to reduce environmental costs.

Question 35

Prevention costs include inspection and product testing.

Question 36

What are ISO 9000 and ISO 14000?

Question 37

External failure costs are costs incurred on defective products after they have been shipped to customers.

Question 38

Ply Corp manufactures doors.Classify each of the following quality costs as prevention costs,appraisal costs,internal failure costs,or external failure costs.
a.Retesting of reworked products
b.Downtime due to quality problems
c.Analysis of the cause of defects in production
d.Depreciation of test equipment
e.Warranty repairs
f.Lost sales arising from a reputation for poor quality
g.Quality circles
h.Rework direct manufacturing labor and overhead
i.Net cost of spoilage
j.Technical support provided to suppliers
k.Audits of the effectiveness of the quality system
l.Plant utilities in the inspection area
m.Reentering data because of keypunch errors

Question 39

Wilson's Language School manufactures CDs and DVDs to teach English as a Second Language.Wilson has just prepared a Cost of Quality Report,and the staff has noticed a decline in prevention costs as a percentage of total sales over a three-year period.What changes might Wilson expect to see in appraisal costs as a percentage of sales,internal failure costs as a percentage of sales,and external failure costs as a percentage of sales given this trend?

Question 40

Which of the following is an example of a nonfinancial measure for customer satisfaction?

A)average manufacturing time for key products
B)contribution margin earned on popular products
C)on time delivery rates
D)time and effort spent on machine repairs

Question 41

Examples of nonfinancial measures of quality include the ________.

A)inspection costs incurred
B)number of customer complaints
C)design engineering costs
D)quality training costs

Question 42

If Six Sigma's goal is to get defect rates down to 3.4 defects per every 100,000 units produced.

Question 43

An example of a financial measure of customer satisfaction would be the percentage of defective products produced during a particular month.

Question 44

The implication of controlling a process at a Six Sigma level is that the process produces only 3.4 defects per million products produced.

Question 45

Percentage of reworked products is an example of a nonfinancial measure of internal business-process quality.

Question 46

Komerica Corp is committed to its quality program.It works with all areas of the company to establish sound quality programs within reasonable budget guidelines.For 2018,it has budgeted $1,000,000 for prevention costs and $900,000 for appraisal costs.Internal failure has a budget of $100 per failed item,while external failure has a total budget of $600,000.
Product Testing has proposed to management a change in the 2018 budget for a new method of testing products.If management decides to implement the new method,$1.50 per unit of appraisal costs will be saved,up to a level of 150,000 tests.No additional savings are expected past the 150,000 level.The new method involves $95,000 in training costs and $65,000 in yearly testing supplies.
Traditionally,5% of all completed items have to be reworked.External failure costs average $120 per failed unit.The company's average external failures are 1% of units sold.The company carries no ending inventories.
Required:
a.What is the adjusted budget for appraisal costs,assuming the new method is implemented and 800,000 units are tested during the manufacturing process in 2017?
b.How much do internal failure costs change,assuming 500,000 units are tested under the new method and it reduces the amount of unacceptable units in the manufacturing process by 40%?
c.What would be the change in the external failure budget,assuming external failures are reduced by 60% and the same facts as in part (b)?

Question 47

When considering how well a company is doing keeping customers happy and understanding their needs and wants,financial and nonfinancial measures can be used.

Question 48

An important difference between financial measures of quality and nonfinancial measures of quality is that ________.

A)financial measures of quality tend to be useful indicators of future long-term performance,while nonfinancial measures have more of a short-term focus
B)nonfinancial measures of quality tend to be useful indicators of future long-term performance,while financial measures of quality have more of a short-term focus
C)nonfinancial measures are generally too subjective to have any long-term value,while financial measures are too objective for taxation purposes
D)nonfinancial measures are generally too subjective to have any short-term value,while financial measures are too objective to have medium-term value

Question 49

Cause-and-effect diagrams are used in quality management systems to ________.

A)identify and respond to potential reasons of failure
B)indicate how frequently each type of failure occurs
C)distinguish random from nonrandom variations in an operating process
D)evaluate the tradeoffs among prevention costs,appraisal costs,and failure costs

Question 50

What are control charts and how can inferences be drawn from them?

Question 51

Which of the following is a chart which indicates how frequently each type of defect occurs?

A)control chart
B)Pareto diagram
C)scatter diagram
D)fishbone diagram

Question 52

A control chart identifies potential causes of failures or defects.

Question 53

An on-time delivery rate is considered a nonfinancial measure of customer satisfaction.

Question 54

A corporation can measure its quality performance by using financial or nonfinancial measures of quality.Discuss the merits of each method and whether the use of one precludes the use of the other.

Question 55

A Pareto diagram is usually in a bar-chart format,that indicates how frequently each type of defect occurs,ordered from the most frequent to the least frequent.

Question 56

Discuss the methods used to identify quality problems.

Question 57

An illustration that resembles the bone structure of a fish and identifies potential reasons why a problem exists is called ________.

A)control chart
B)Pareto diagram
C)cause-and-effect diagram
D)time-series graphs

Question 58

Northern Corp is concerned about its declining sales,especially the reduction in the number of customers.For the last two years,its shirts have won industry awards for high quality and trend-setting styles.At the latest executive managers' meeting,all were blaming each other for the decline.After much discussion and presenting some fact-finding information,it was determined that sales relationships were the cause of most of the problems.
Required:
What may be some of the causes and how can the causes be detected if product quality is not an issue?

Question 59

When using a control chart,the observations outside the upper and lower control limits are ordinarily regarded as nonrandom and worth investigating.

Question 60

Baby Care Products has just completed a very successful program of improving quality in its manufacturing operations.The next step is to improve the operations of its administrative functions,starting with the accounting information system.As the manager of the accounting operations,you are requested to begin a quality improvement program.
Required:
What are some possibilities of finding out about the current status of quality in the accounting system?

Question 61

Managers identify the relevant costs and benefits for each solution by focusing on ________.

A)the alternative solution that will derive maximum customer satisfaction
B)how total costs and total revenues will change under each alternative solution
C)how the employees of a company would be able to implement a change
D)how long it will take for the improved program to be fully functional

Question 62

Cost of Quality (COQ)reports provide more insight about quality improvements and allow managers to compare trends over time.

Question 63

LaCrosse Products has a budget of $903,000 in 2017 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 $40,800 in training costs and $100,000 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 151,000 units.
Appraisal costs for the year are budgeted at $609,000.The new prevention procedures will save appraisal costs of $50,400.Internal failure costs average $15 per failed unit of finished goods.The internal failure rate is expected to be 3% of all completed items.The proposed changes will cut the internal failure rate by one-third.Internal failure units are destroyed.External failure costs average $58 per failed unit.The company's average external failures average 3% of units sold.The new proposal will reduce this rate by 50%.Assume all units produced are sold and there are no ending inventories.
Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment.What is the net impact of all the changes created by the preventive changes? (Note: numbers shown as (negatives )represent net savings and positive numbers represent net cost. )

A)$140,800
B)$(22,650)
C)$(143,820)
D)$(131,370)

Question 64

The financial cost of quality measures serves as a common denominator for evaluating trade-offs among prevention costs and failure costs.

Question 65

Cysco Corp has a budget of $1,200,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $103,000 in variable costs.The new method will require $51,000 in training costs and $148,000 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 207,000 units.
Appraisal costs for the year are budgeted at $508,000.The new prevention procedures will save appraisal costs of $50,000.Internal failure costs average $34 per failed unit of finished goods.The internal failure rate is expected to be 5% 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 $52 per failed unit.The company's average external failures average 4.5% of units sold.The new proposal will reduce this rate to 1%.Assume all units produced are sold and there are no ending inventories.
Management has offered to allow the prevention changes if all changes take place as anticipated and the amounts netted are less than the cost of the equipment.What is the net impact of all the changes created by the preventive changes? Assume that internal product failures are reduced by 45% with the new procedures.

A)$215,280
B)$(489,095)
C)$(465,540)
D)$(254,000)

Question 66

Cysco Corp has a budget of $1,202,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $100,000 in variable costs.The new method will require $50,000 in training costs and $149,000 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 205,000 units.
Appraisal costs for the year are budgeted at $505,000.The new prevention procedures will save appraisal costs of $50,600.Internal failure costs average $34 per failed unit of finished goods.The internal failure rate is expected to be 6% 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 $58 per failed unit.The company's average external failures average 2.7% of units sold.The new proposal will reduce this rate to 2%.Assume all units produced are sold and there are no ending inventories.
What is the net change in the budget of prevention costs if the procedures are automated in 2017? Will management agree with the changes?

A)$100,000 decrease,yes
B)$99,600 decrease,yes
C)$100,000 increase,no
D)$99,600 increase,yes

Question 67

LaCrosse Products has a budget of $904,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $80,500 in variable costs.The new method will require $40,900 in training costs and $109,000 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 154,000 units.
Appraisal costs for the year are budgeted at $610,000.The new prevention procedures will save appraisal costs of $50,100.Internal failure costs average $16 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-third.Internal failure units are destroyed.External failure costs average $56 per failed unit.The company's average external failures average 4% of units sold.The new proposal will reduce this rate by 45%.Assume all units produced are sold and there are no ending inventories.
How much will appraisal costs change assuming the new prevention methods reduce material failures by 40% in the appraisal phase?

A)$149,900 decrease
B)$69,400 increase
C)$50,100 decrease
D)$32,853 decrease

Question 68

LaCrosse Products has a budget of $900,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $81,000 in variable costs.The new method will require $41,000 in training costs and $109,000 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 155,000 units.
Appraisal costs for the year are budgeted at $600,000.The new prevention procedures will save appraisal costs of $50,200.Internal failure costs average $18 per failed unit of finished goods.The internal failure rate is expected to be 2% of all completed items.The proposed changes will cut the internal failure rate by one-third.Internal failure units are destroyed.External failure costs average $50 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 2017? Will management agree with the changes?

A)$69,000 decrease,yes
B)$69,000 increase,yes
C)$150,000 increase,no
D)$81,000 decrease,yes

Question 69

Cysco Corp has a budget of $1,207,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $109,000 in variable costs.The new method will require $50,300 in training costs and $144,000 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 202,000 units.
Appraisal costs for the year are budgeted at $501,000.The new prevention procedures will save appraisal costs of $50,100.Internal failure costs average $36 per failed unit of finished goods.The internal failure rate is expected to be 5% 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 $56 per failed unit.The company's average external failures average 4.1% of units sold.The new proposal will reduce this rate to 2%.Assume all units produced are sold and there are no ending inventories.
How much do external failure costs change if all the changes are as the new prevention procedures anticipated? Assume all units produced are sold and there are no ending inventories.

A)$279,576 decrease
B)$237,552 decrease
C)$226,240 decrease
D)$254,520 decrease

Question 70

Discuss the means by which a company goes about evaluating and installing a new quality improvement program.

Question 71

Cysco Corp has a budget of $1,210,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $108,000 in variable costs.The new method will require $50,400 in training costs and $145,000 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 206,000 units.
Appraisal costs for the year are budgeted at $510,000.The new prevention procedures will save appraisal costs of $50,600.Internal failure costs average $32 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 $50 per failed unit.The company's average external failures average 2.7% 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 internal failure costs change if the internal product failures are reduced by 40% with the new procedures?

A)$151,360 decrease
B)$134,400 decrease
C)$105,472 decrease
D)$87,000 increase

Question 72

Premier Corp expects to spend $801,000 in 2017 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 $60,300 in fixed appraisal costs and variable costs of $0.50 per unit of finished product.The new method involves $150,000 in training costs and an additional $157,000 in annual equipment rental.
Internal failure costs average $180 per failed unit of finished goods.During 2014,4% of all completed items had to be reworked.External failure costs average $400 per failed unit.The company's average external failures are 3% of units sold.The company carries no ending inventories,because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
How much will external failure costs change assuming 810,000 units of materials are received and that product failures with customers are cut in half with the new receiving method?

A)$16,020 increase
B)$4,860,000 decrease
C)$2,187,000 decrease
D)$9,720,000 decrease

Question 73

Cost of quality financial measures will usually deteriorate when nonfinancial measures of quality are emphasized and improved.

Question 74

Premier Corp expects to spend $800,500 in 2017 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 $60,100 in fixed appraisal costs and variable costs of $0.50 per materials units received.The new method involves $140,600 in training costs and an additional $150,000 in annual equipment rental.
Internal failure costs average $160 per failed unit of finished goods.During 2016,4% of all completed items had to be reworked.External failure costs average $430 per failed unit.The company's average external failures are 1% of units sold.The company carries no ending inventories,because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
What is the net effect on appraisal costs for 2017,assuming the new receiving method is implemented and that 800,500 material units are received?

A)$1292 increase
B)$169,750 decrease
C)$290,600 decrease
D)$4003 increase

Question 75

LaCrosse Products has a budget of $907,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $80,700 in variable costs.The new method will require $40,200 in training costs and $102,000 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 155,000 units.
Appraisal costs for the year are budgeted at $600,000.The new prevention procedures will save appraisal costs of $50,000.Internal failure costs average $15 per failed unit of finished goods.The internal failure rate is expected to be 2% of all completed items.The proposed changes will cut the internal failure rate by one-third.Internal failure units are destroyed.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.
How much will internal failure costs change if the internal product failures are reduced by 1/3 with the new procedures? (Do not round intermediate calculations. )

A)$15,500 decrease
B)$19,582 decrease
C)$498,000 decrease
D)$755,000 decrease

Question 76

In successful quality programs,companies decrease costs of quality and,in particular,internal and external failure costs as a percentage of revenues.

Question 77

Premier Corp expects to spend $800,900 in 2017 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 $60,500 in fixed appraisal costs and variable costs of $0.50 per unit of finished product.The new method involves $140,500 in training costs and an additional $150,300 in annual equipment rental.
Internal failure costs average $250 per failed unit of finished goods.During 2016,6% of all completed items had to be reworked.External failure costs average $450 per failed unit.The company's average external failures are 2% of units sold.The company carries no ending inventories,because all jobs are on a per order basis and a just-in-time inventory ordering method is used.
What would be the change in the external failure budget,if 600,300 units are used and assuming external failures are reduced by 12%.

A)$48,054 increase
B)$250,150 decrease
C)$648,324 decrease
D)$304,342 decrease

Question 78

Cysco Corp has a budget of $1,207,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $106,000 in variable costs.The new method will require $50,200 in training costs and $143,000 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 201,000 units.
Appraisal costs for the year are budgeted at $503,000.The new prevention procedures will save appraisal costs of $50,600.Internal failure costs average $34 per failed unit of finished goods.The internal failure rate is expected to be 6% 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 $58 per failed unit.The company's average external failures average 2.5% of units sold.The new proposal will reduce this rate to 2%.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 40% in the appraisal phase?

A)$156,200 decrease
B)$307,545 decrease
C)$50,600 increase
D)$50,600 decrease

Question 79

Relevant-cost and relevant-revenue analysis uses the allocated costs as the base for calculating the costs of a quality improvement program.

Question 80

LaCrosse Products has a budget of $910,000 in 2017 for prevention costs.If it decides to automate a portion of its prevention activities,it will save $80,800 in variable costs.The new method will require $40,500 in training costs and $103,000 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 151,000 units.
Appraisal costs for the year are budgeted at $606,000.The new prevention procedures will save appraisal costs of $50,400.Internal failure costs average $15 per failed unit of finished goods.The internal failure rate is expected to be 2% of all completed items.The proposed changes will cut the internal failure rate by one-third.Internal failure units are destroyed.External failure costs average $50 per failed unit.The company's average external failures average 2% of units sold.The new proposal will reduce this rate by 50%.Assume all units produced are sold and there are no ending inventories.
How much do external failure costs change if all changes are as anticipated with the new prevention procedures? Assume all units produced are sold and there are no ending inventories.

A)$75,500 decrease
B)$75,500 increase
C)$151,000 decrease
D)None of these answers is correct.