A company makes Jeans of various sizes and styles, but sells them all for one price, $69.95.  There is one exception, Jeans made with a defect are sold as factory seconds for $29.95.  Make a model that will allow the company to evaluate a proposal for improving the defect rate. An improvement proposal is described by an implementation cost, a % reduction in defect rate, and a change in number of units produced (number of defects are reduced by adding an internal inspection, which takes time and reduces the number of units that can be made.) Set up the model so that it shows revenues before and after the improvement and computes the net impact, that is: 

change in revenues - improvement implementation cost. Currently, 21,500 units are being produced with a 10% defect rate.

1). What is the net impact of implementing a proposal that costs $15,000, reduces defects by 5% and reduces the number of units by 500. 

2). Suppose they changed the selling price of factory seconds.   At what price would the proposal above just break even (net= $0)?

3). If a proposal was able to drop defect percentage by only 2%, and did not change number of units made, what implementation cost would just break even?           

Answer rating: 100% (QA)

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