al failure costs average $ 15 per failed unit of finished goods . The inte rnal failure rate is expected to be 3 % of all completed items . The pro posed changes will cut the internal failure rate by onethird . Internal failure units are destroyed . External failure costs avera ge $ 54 per failed unit . The company ' s average external failures avera ge 3 % of units sold . The new proposal will reduce this rate by 50 %. Assume all units produced are sold and there are no ending inventorie s . How much will appraisal costs change , assuming the new prevention methods reduce material failures by 40 % in the appraisal phase ? 23 . ( TCO 11 ) Regal Products has a budget of $ 900,000 in 20X6 for pr evention costs . If it decides to automate a portion of its prevention acti vities , it will save $ 60,000 in variable costs . The new method will req uire $ 18,000 in training costs and $ 120,000 in annual equipment costs . Management is willing to adjust the budget for an amount up to the c ost of the new equipment . The budgeted production level is 200,000 u nits . Appraisal costs for the year are budgeted at $ 600,000 . The new p revention procedures will save appraisal costs of $ 30,000 . Internal fail ure costs average $ 15 per failed unit of finished goods . The internal fa ilure rate is expected to be 3 % of all completed items . The proposed c hanges will cut the internal failure rate by onethird . Internal failure units are destroyed . External failure costs 24 . ( TCO 12 ) Obsolescence is an example of which cost category ? 25 . ( TCO 12 ) Liberty Celebrations , Inc . manufactures a line of flags . The annual demand for its flag display is estimated to be 100,000 unit s . The annual cost of carrying one unit in inventory is $ 1.60 , and the cost to initiate a production run is $ 100 . There are no flag displays on hand but Liberty had scheduled 70 equal production runs of the displ ay sets for the coming year , the first of which is to be run immediately . Liberty Celebrations has 250 business days per year . Assume that s ales occur uniformly throughout the year and that production is instan taneous . The estimated total setup cost for the flag displays for the coming yea r is 1 . If Liberty Celebrations does not maintain a safety stock , the estimat ed total carrying cost for the flag displays for the coming year is 100000 / 60 = 1667 units per run