Versailles Manufacturing

$\backslash (\backslash$$ $380,000\backslash )$ in $2018$ to inspect incoming components. Of the $\backslash (\backslash$$ $380,000,\backslash$$ $250,000\backslash )$ is fixed appraisal costs. The variable inspection cost is $\backslash (\backslash$$ $0\mathrm{.}25\backslash )$ per component. It takes four components for each finished product. Internal failure costs average $\backslash (\backslash$$ $90\backslash )$ per failed unit of finished goods. In $2018,$ three percent of all completed items had to be reworked. External failure costs average $\backslash (\backslash$$ $250\backslash )$ per failed unit. The company's average external failures are five 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$),$ Versailles contracted Quality Consultants, Inc. $($QCI$)$ to study ways to improve product quality and to reduce costs. Upon completion of the study, QCI recommended automatic inspection equipment that requires a $\backslash (\backslash$$ $70,000\backslash )$ annual cost for training and $\backslash (\backslash$$ $230,000\backslash )$ for equipment rental and maintenance. The new equipment will eliminate $\backslash (\backslash$$ $60,000\backslash )$ of the fixed appraisal costs, reduce the amount of unacceptable product units in the manufacturing process by $15$ percent, and cut product failures by $\backslash (33\backslash \%\backslash ).$ The company paid the consulting firm $\backslash$$$130,000$ in early January $2019$ for the project. Versailles expects no changes in its operating level in the foreseeable future.

What effect does the new equipment have on appraisal costs?

$\backslash (\backslash$$ $240,000\backslash )$ increase.

$\backslash (\backslash$$ $10,000\backslash )$ increase.