Horizon Manufacturing Company spent $$400,000$ in $2021$ to inspect incoming components.

Of the $$400,000,$$$240,000$ is fixed appraisal costs. The variable inspection cost is $$0\mathrm{.}20$ per

component. It takes two components for each finished product. Internal failure costs

average $$80$ per failed unit of finished goods. In $2021,$ five percent of all completed items

had to be reworked. External failure costs average $$200$ per failed unit. The company's

average external failures are one percent of units sold.

The company manufactures all units as ordered and carries no materials inventories. Seeking

to decrease its total cost of quality $($COQ$),$ Horizon contracted Quality$-$is$-$Free Consultants,

Incorporated $($QIFC$)$ to study ways to improve product quality and to reduce costs. Upon

completion of the study, QIFC recommended automatic inspection equipment that requires

a $$60,000$ annual cost for training and $$150,000$ for equipment rental and maintenance.

The new equipment will eliminate $$40,000$ of the fixed appraisal costs, reduce the amount

of unacceptable product units in the manufacturing process by $10$ percent, and cut product

failures by half. The company paid the consulting firm $$100,000$ in early January $2022$ for

the project. Horizon expects no changes in its operating level in the foreseeable future.

How much do you expect total external failure costs to change?

$$400,000$ decrease.

$$10,000$ increase.

$$200,000$ decrease.

$$320,000$ decrease.

$$800,000$ decrease.