PIM Industries Incorporated manufactures electronics components. Each unit costs $45 before the final test. The final test rejects, onaverage, 6% of the 60,000 units manufactured per year. The average rejection rate of the industry is 4%. A consultant has determinedthat poor lighting is the most likely cause of this high rejection rate. It would cost $175,000 to install adequate lighting in the assemblydepartment, which would be useful for 5 years. With adequate lighting (which will cost an additional $6,500 of operating costs peryear), the firm expects to reduce its rejection rate to no higher than the industry average.Required:1-a. What would be the projected five-year impact on operating profit?Five-year projected effect on operating income1-b. Based solely on the relevant cost analysis you performed, should the firm install the lighting?YesO No

Net Annual Savings = Savings due to rejections - Annual Operating Costs

Answered: PIM Industries Incorporated…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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