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Joshua Enterprise Ltd expects to spend $800,500 in 2021 in appraisal costs if it does...

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Accounting

Joshua Enterprise Ltd expects to spend $800,500 in 2021 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 2020, 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.

Compute the net effect on appraisal costs for 2021, assuming the new receiving method is implemented and that 800,500 material units are received.

a.

$169,750 increase
b.

$169,750 decrease
c.

$460,350 increase
d.

$460,350 decrease
e.

None of the answers.

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