Vignettes on Costs of Quality. Steve Fan, a quality assurance manager for Lynx Motors, has seen a lot of proposals for spending money on quality projects. He wants to "get his money's worth" from the investments he approves. He has the following on his desk now:

A. Manager A recommends a \(\$ 50,000\) expenditure to modify equipment which will reduce the tolerances in a metal grinding operation. The equipment is expected to last another five years. Eventually, reject rates will be lowered by 50 percent. Annually, this will save 500 units from being scrapped. The manufactured per unit cost is:

Fixed overhead is common costs. Scrap revenue is \(\$ 4\) per unit.
B. Manager B wants to expand output of saleable units by 1,000 monthly. For these units, incremental costs will be \(\$ 120,000\). Current production capacity is 50,000 units. Typically, only 45,000 good units are produced and sold. Ten percent of the output has to be reprocessed and is sold at a price that recovers the incremental and reprocessing costs only. Steve thinks that improved training of employees would reduce the need for reprocessing by 40 percent. The training over the next year will cost \(\$ 80,000\).
C. Manager \(\mathrm{C}\) wants to increase the number of inspectors to reduce defects leaving the plant. The plan calls for \(\$ 200,000\) for a testing lab and \(\$ 100,000\) for personnel to test every fifth item on the assembly line. Most defects are caused by adapting complex engineering designs to the production equipment. Last year, ongoing engineering changes cost \(\$ 60,000\) to create and another \(\$ 135,000\) to implement. Scrap from testing processes after each engineering change costs \(\$ 36,000\).
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Suggest an analysis format to evaluate each case.

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Prime costs Variable overhead Fixed overhead Unit cost..... $ 8 2 8 $18