Backwoods American, Inc., produces expensive water-repellent, down-lined parkas. Currently, the cost of producing each parka is estimated to be $55. This company is planning to produce approximately 2000 parkas in the next year. The quality manager of the company has estimated that, with the current situation, 15% of the parkas produced will be defective and only 60% of the defective parkas can be reworked. The rework cost is estimated to be $10.

The quality management department has suggested to upgrade the sewing machine to reduce the percentage of defective items. With this upgrade, the cost of producing each parka will be 60$ and the percentage of defective items will be 8%. The rework cost and the percentage of defective items that can be reworked do not change with this upgrade.

Calculate:

Number of units reworked during the next year, with the current situation:

Product yield during the next year, with the current situation:

Effective per unit production cost, with the current situation:

If the company wants the yield to be 2000, how many parkas they should plan to produce during the next year, with the current situation?

Number of units reworked annually with the upgraded sewing machine:

The Yield during the next year with the upgraded sewing machine:

Effective per unit production cost per with the upgraded sewing machine:

Should the company upgrade their sewing machine?

Yes

No