Destin Company produces water control valves, made of brass, which they sell primarily to builders for use
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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 5.0 percent to 3.5 percent of annual output (equal in total to 15,000 units). The reduction in reject rates has enabled the company to reduce its inventory holdings from $400,000 to $250,000. Destin estimates that the annual financing cost associated with inventory holdings is 12 percent.
Required
Provide a dollar estimate of the annual cost savings associated with the recently enacted quality improvements. Showcalculations.
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Related Book For
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins
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