Montana Industries manufactures electronic testing equipment. The company also installs the equipment at customers sites and ensures

Montana Industries manufactures electronic testing equipment. The company also installs the equipment at customers’ sites and ensures that it functions smoothly. Additional information on the manufacturing and installation departments is as follows (capacities are expressed in terms of the number of units of electronic testing equipment):

Montana manufactures only 450 units per year because that is the maximum capacity of the installation department. The equipment sells for $ 30,000 per unit (installed) and has direct material costs of $ 10,000. All costs other than direct material costs are fixed. The following requirements refer only to the preceding data. There is no connection between the requirements.

Required
1. Montana’s engineers have found a way to reduce equipment manufacturing time. The new method would cost an additional $ 30 per unit and would allow Montana to manufacture 22 additional units a year. Should Montana implement the new method? Show your calculations.
2. Montana’s designers have proposed a change in direct materials that would increase direct material costs by $ 1,500 per unit. This change would enable Montana to install 475 units of equipment each year. If Montana makes the change, it will implement the new design on all equipment sold. Should Montana use the new design? Show your calculations.
3. Montana has developed a new installation technique that will enable its engineers to install 17 additional units of equipment a year. The new method will increase installation costs by $ 70,000 each year. Should Montana implement the new technique? Show your calculations.
4. Montana is considering how to motivate workers to improve their productivity (output per hour). One pro-posal is to evaluate and compensate workers in the manufacturing and installation departments on the basis of their productivities. Do you think the new proposal is a good idea? Explainbriefly.

Transcribed Image Text:

Annual capacity Equipment manufactured and installed Equipment Manufacted 500 units per year 450 units per year Equipment Installed 450 units per year 450 units per year