Saskatoun Shoes Inc. is a large footwear manufacturer located in Saskatoon, Saskatchewan. It sells its products to wholesalers across Canada and internationally. Currently, the production process has a scrap rate of 16% and a return rate of 2%. Scrap costs are related to wasted material and are usually $14 per unit. Warranty costs average $40 per unit returned. The company is looking to invest in new equipment to improve its production processes and the quality of their shoes. It has the following three options to choose from. Your role is to help the company make the right choice.

Option 1: Invest $500,000 in new equipment. The new process will require an additional cost of $1.5 raw material per unit produced. However, it will reduce scrap return 40% from current levels.

Option 2: Invest $175,000 in new equipment. The new process will require an additional cost of $3 raw material per unit produced. However, it will reduce scrap return 94% from current levels.

Option 3: Invest $ 2.2 million in new equipment. The new process will require no additional cost of raw material per unit produced. However, it will reduce scrap return 50% from current levels.

1. Which option would you recommend if the current production level is 1.5 million units?