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The company also manufactures small items of equipment which it sells through a retail
network. The company sold 12,000 items of this type this year, which also have a 1 year
warranty if the equipment fails to perform properly. Based on past experience, 5% of
items sold are returned for repair or replacement. In each case, one third of the items
returned are able to be repaired at a cost of Rs. 1,000 each, while the remaining two
thirds are scrapped and replaced. The manufacturing cost of a replacement item is Rs.
10,000.
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