Costs of Quality. The Hackman Company processes financial contracts for several major banks. Accuracy is essential. Errors cause inconvenience to the parties involved, legal entanglements, and embarrassment. The financial arrangements are complex and difficult to check manually. Thus, self-checking software is being considered to eliminate much of the calculation evaluation, word processing reviews, and checks for missing items. The software purchase, modification, and installation will cost \(\$ 300,000\). Annual updating and routine monitoring will cost \(\$ 30,000\) per year. It is estimated that three clerical positions can be eliminated at a "loaded" cost of \(\$ 40,000\) each. It is estimated that the rate of errors in finished documents can be cut by 80 percent. Correcting one error costs an estimated \(\$ 100\). A review of one sample month's work last year showed that 50 errors slipped through the review processes and had to be corrected. These errors resulted in a loss of \(\$ 50,000\) in costs and legal fees. This was thought to be a typical month in terms of activity and results.

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Assuming a three-year cycle for this computer system, evaluate the costs and benefits of the new software.