Cysco Corp has a budget of $1,206,000 in 2020 for prevention costs. If it decides to automate a portion of its prevention activities, it will save $104,000 in variable costs. The new method will require $50,600 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 200,000 units.Appraisal costs for the year are budgeted at $505,000. The new prevention procedures will save appraisal costs of $50,300. Internal failure costs average $38 per failed unit of finished goods. During 2019, 6% of all completed items had to be reworked. The proposed changes will cut the internal failure rate by onehalf.

External failure costs average $54 per failed unit. The company's average external failures average 3.5% of units sold. The new proposal will reduce this rate to 2%. Assume all units produced are sold and there are no ending inventories.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 35% with the new procedures.

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Analysis of Cysco Corps Prevention Cost Proposal Cost Savings Variable Cost Savings 104000 Increased ... View the full answer