costs . Management is willing to adjust the budget for an amount up to the cost of the new equipment . The budgeted production level is 150,000 units . Appraisal costs for the year are budgeted at $ 600,000 . The new prevention procedures will save appraisal costs of $ 30,000 . 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 $ 54 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 . How much will internal failure costs change if the internal product failures are reduced by 50 % with the new procedures ? ( Points : 5 ) 24 . ( TCO 12 ) Obsolescence is an example of which cost category ? ( Points : 5 ) 25 . ( TCO 12 ) Liberty Celebrations , Inc ., manufactures a line of flags . The annual demand for its flag display is estimated to be 100,000 units . The annual cost of carrying one unit in inventory is $ 1.60 , and the cost to initiate a production run is $ 30 . There are no flag displays on hand but Liberty had scheduled 60 equal production runs of the display sets for the coming year , the first of which is to be run immediately . Liberty Celebrations has 250 business days per year . Assume that sales occur uniformly throughout the year and that production is instantaneous . If Liberty Celebrations does not maintain a safety stock , the estimated total carrying cost for the flag displays for the coming year is the estimated total setup cost for the flag displays for the coming year is ( Points : 5 ) ( TCO 5 ) Robert ' s Medical Equipment Company manufactures hospital beds . Its most popular model , Deluxe , sells for $ 5,000 . It has variable costs totaling $ 2,800 and fixed costs of $ 1,000 per unit , based on an average production run of 5,000 units . It normally has four production runs a year , with $ 400,000 in setup costs each time . Plant capacity can handle up to six runs a year for a total of 30,000 beds . A competitor is introducing a new hospital bed similar to Deluxe that will sell for $ 4,000 . Management believes it must lower the price to