=+b 10% of the CP99s manufactured are reworked.

c Sounds places two orders with each component supplier each month. Each component is supplied by a different supplier.

d It currently takes 1 hour to manufacture each unit of CP99.

In response to competitive pressures, Sounds must reduce its price to $62 per unit and its costs by $8 per unit. No additional sales are anticipated at this lower price. However, Sounds stands to lose significant sales if it does not reduce its price. Manufacturing has been asked to reduce its costs by $6 per unit. Improvements in manufacturing efficiency are expected to yield a net saving of

$1.50 per radio-CD player, but that is not enough. The chief engineer has proposed a new modular design that reduces the number of components to 50 and also simplifies testing. The newly designed radio-CD player, called ‘New CP99’, will replace CP99.

The expected effects of the new design are as follows: