SmartCOM, Inc. manufactures internal modems for use with personal computers (PC). A modem is a device that allows a personal computer to communicate with other computers or fax machines through ordinary phone lines. The company is working with a PC manufacturer who is thinking of bundling the SmartCOM modem as a standard component with each new PC. SmartCOM's marketing manager has determined that PC buyers would be willing to pay $110 for a modem. The cost to the PC maker of installing and testing the hardware and the software is $25. In addition, the PC manufacturer requires a 10 percent return on sales. The net selling price that SmartCOM can charge the PC maker, therefore, is $74.

Research conducted jointly by the PC maker and SmartCOM's marketing personnel shows that customers want six features. These are: 1. ability to communicate at high speed, 2. ability to send and receive clear faxes, 3. error-free communication over "noisy" telephone lines, 4. voice mail capability for multiple mailboxes, 5. compatibility with most brands of PCs, and 6. ability to work in the background.

Based on this research, SmartCOM's engineers have come up with a modem design that uses four main modules: 1. a converter module that would convert digital signals into analog signals so they can travel over standard phone lines 2. a fax module that would provide the capability to communicate with standard fax machines 3. a voice module that would take messages for multiple voice mail boxes 4. a processing module that would direct traffic to the right place, that is, to the computer, fax/printer, or voice recording/playback chip. Each module has several major components. A list of the major components in each module, together with preliminary cost estimates for manufacturing or buying each component, appears in Table 1 below.

In addition to the above, the marketing department estimates that order filling (primarily order processing and delivery) costs would run $4.00 per unit. General and administrative costs are expected to be $14.00 a unit. SmartCOM expects to earn a 15 percent return on sales. SmartCOM's engineers have determined the relationship or contribution of each of the various functional components to customer features. This relationship is shown in Table 2 below.

a. What is the overall target cost for the modem? The target for the manufacturing cost of the modem? The cost gap between allowable and current cost? The gap for the manufacturing cost? b. Calculate a value index for the components of the modem. c. For each component, indicate what action is implied by the value index. d. Explain how value engineering can help in closing the gap between allowable and achievable target costs for the modem. List some of the major ideas you would consider for cost reduction.

(Please provide a detailed explanation for your answer. Thanks in advance.)