Jupiter Game Company manufactures pocket electronic games. Last year Jupiter sold 25,000 games at $25 each. Total costs amounted to $525,000, of which $150,000 were considered fixed. In an attempt to improve its product, the company is considering replacing a component part that has a cost of $2.50 with a new and better part costing $4.50 per unit in the coming year. A new machine also would be needed to increase plant capacity. The machine would cost $18,000 with a useful life of six years and no salvage value. The company uses straight-line depreciation on all plant assets. (Ignore income taxes.) Refer to the original data given for Jupiter Game Company in the preceding problem. An activity-based costing study has revealed that Jupiter's S150,000 of fixed costs include the following components Setup (40 setups at $400 per setup) Engineering (500 hours at $25 per hour) Inspection (1,000 inspections at $30 per inspection) General factory overhead S 16,000 12,500 30,000 61,500 $120,000 30,000 S150,000 Total Fixed selling and administrative costs Total fixed costs Management is considering the installation of new, highly automated manufacturing equipment that would significantly alter the production process. In addition, management plans a move toward just-in-time inventory and production management. If the new equipment is installed, setups will be quicker and less expensive. Under the proposed JIT approach, there would be 300 setups per year at $50 per setup. Since a total quality control program would accompany the move toward JIT, only 100 inspections would be anticipated annually, at a cost of $45 each. After the installation of the new production system, 800 hours of engineering would be required at a cost of $28 per hour. General factory overhead would increase to $166,100. However, the automated equipment would allow Jupiter to cut its unit variable cost by 20 percent. Moreover, the more consistent product quality anticipated would allow management to raise the price of electronic games to $26 per unit. (Ignore income taxes.)