Raapin Guitars (RG) Raapin Guitars (RG) manufactures guitars in Finland. Over many decades, it has built a reputation for producing high quality, handmade guitars. Apprentices* are recruited when they are 16 or 17 years old. Each apprentice completes a seven-year training program. They are then considered “professional craftsmen” and can expect permanent careers at RG. Each craftsman works with two apprentices to produce high-quality guitars using a batch production method. Last year, RG sold 4920 guitars at an average price of €1200 each. It employed 42 professional craftsmen earning €50 000 per year and one manager earning €70 000 per year. Annual fixed costs € Insurance 120 000 Rent 480 000 Manager’s and craftsmens’ salaries X Apprentices’ salaries 700 000 Lease on equipment 600 000 Variable costs per guitar € Materials 225 Supplies 35 Other 15 Recently, RG has struggled to recruit talented teenagers for the apprentice program. Most teenagers in Finland complete secondary school and go to university. Many of them graduate as engineers and design technologists. As a consequence, Anni Raapin, Chief Executive officer (CEO) of RG, is considering changing the overall production process at RG. She wants to change from a traditional batch production process using professional craftsmen, to an automated flow production process led by two highly trained engineers. These engineers will manage the new production process operated by low-skilled workers. Even if RG changes to this new production process, the professional craftsmen will not be made redundant. The oldest craftsmen will be offered early retirement. Others will become managers of the new flow production process; the youngest ones will become low-skilled workers. As the craftsmen retire, they will be replaced by workers who have not trained as apprentices and have no knowledge of the traditional batch production process. These new workers will be paid half the salary of the previous professional craftsmen. * apprentice: typically a young person between 15 and 2