Each unit of a product requires 5 components. The average number of components is 5.50 due to component failure. Purchasing higher quality components can reduce the average number of components to 5 per unit. The cost per component is $450. Calculate the reduction in failure costs per unit due to purchasing higher quality components.

$43

$350

$175

$225

$372

correct option is d. $225

Explanation:

given data

product requires = 5 component

average number of components = 5.50

reduce average number of components = 5 per unit

cost per component = $450

solution

we get here reduction in failure costs per unit due to purchasing that is express as

reduction in failure costs per unit due to purchasing = (average number of components - product requires) * cost per component ... 1

put here value and we get

reduction in failure costs per unit due to purchasing = (5.50 - 5) * $450

reduction in failure costs per unit due to purchasing = $225

so correct option is d. $225