The XYZ Company’s current production processes have a scrap rate of 15% and a return rate of 3%. Scrap costs (wasted materials) are $12 per unit; warranty/repair costs average$60 per unit returned. The company is considering the following alternatives to improve its production processes:

Option A: Invest $400,000 in new equipment. The new process will also require an additional$1.50 of raw materials per unit produced. This option is predicted to reduce both scrap and return rates by 40% from current levels.
Option B: Invest $50,000 in new equipment, but spend an additional$3.20 on higher-quality raw materials per unit produced. This option is predicted to reduce both scrap and return rates by 90% from current levels.
Option C: Invest $2 million in new equipment. The new process will require no change in raw materials. This option is predicted to reduce both scrap and return rates by 50% from current levels.

Assume that all of the proposed changes will increase product quality such that production will jump to 1.5 million units. Which option do you recommend? Why?