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The Kansas Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information:

Data table

	Machining	Finishing
Annual capacity	140,000 units	115,000 units
Annual production	115,000 units	115,000 units
Fixed operating costs (excluding direct materials)	$1,610,000	$1,380,000
Fixed operating costs per unit produced ($1,610,000 115,000; $1,380,000 115,000)	$14 per unit	$12 per unit

Each cabinet sells for $65 and has direct material costs of $25 incurred at the start of the machining operation. Kansas has no other variable costs. Kansas can sell whatever output it produces. The following requirements refer only to the preceding data. There is no connection between the requirements.

Requirement 1.

Kansas is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,350 units. The annual cost of these jigs and tools is $25,000. Should Kansas

acquire these tools? Show your calculations.

Producing 1,350 more units will generate

less

more

contribution (throughput) margin and operating income because

finishing is a bottleneck operation; machining is not

machining is a bottleneck operation; finishing is not

.

Part 2

Select the formula, then enter the amounts to calculate the change in throughput contribution.

				Change in throughput
			=	contribution
			=

Part 3 Should Kansas acquire these tools?

The		in throughput contribution margin is			the incremental costs by		.
Therefore, Kansas			implement the new design.

Part 4

Requirement 2. The production manager of the Machining Department has submitted a proposal to do faster setups that would increase the annual capacity of the Machining Department by

14,000

units and would cost

$28,000

per year. Should

Kansas

implement the change? Show your calculations.

Finishing is not a bottleneck operation; machining is.

Machining is not a bottleneck operation; finishing is.

Increasing its capacity further

will

will not

increase contribution (throughput) margin.

Kansas

should

should not

implement the change to increase production.

Part 5

Requirement 3. An outside contractor offers to do the finishing operation for

14,000

units at

$24

per unit,

double

the

$12

per unit that it costs

Kansas

to do the finishing in-house. Should

Kansas

accept the subcontractor's offer? Show your calculations.

Finishing is a bottleneck operation; machining is not.

Machining is a bottleneck operation; finishing is not.

Part 6

Select the formula you will use to calculate the change in throughput contribution. Then, enter the amounts in the formula and calculate the change in throughput contribution.

				Change in throughput
			=	contribution
			=

Part 7

Kansas		contract with an outside contractor to do 14,000 units of finishing at $24 per unit because the
	in throughput contribution is			incremental costs by		.

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