Answered: sembly. The capacity per month is…

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter10: Short-term Decision Making

Section: Chapter Questions

Problem 6PA: Gent Designs requires three units of part A for every unit of Al that it produces. Currently, part A...

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Question

Montour Manufacturing Corporation makes an electronic component in two departments, Machining and Assembly. The capacity per month is 80,000 units in the Machining Department and 100,000 units in the Assembly Department. The only variable cost of the product is direct material of $200 per unit. All direct material cost is incurred in the Machining Department. All other costs of operating the two departments are fixed costs. Montour can sell as many units of this electronic component as it produces at a selling price of $500 per unit.

Required:

Montour’s Machining managers believe that they could increase the capacity in their department by 10,000 units, if they were able to increase fixed costs by $500,000. Should the money be spent? Explain.
An outside contractor offers to do assembly for 15,000 units at a cost of $2,500,000. Should Montour accept the offer from the subcontractor? Show calculations.
How do your answers in parts (a) and (b) relate to the theory of constraints?

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