=+16-25 KK Theory of constraints, throughput contribution, relevant costs OBJECTIVE 5 Buffalo Ltd manufactures filing cabinets in two operations: machining and finishing. It provides the following information:

Machining Finishing Annual capacity 100 000 units 80 000 units Annual production 80 000 units 80 000 units Fixed operating costs (excluding direct materials) $640 000 $400 000 Fixed operating costs per unit produced ($640 000 ÷ 80 000; $400 000 ÷ 80 000) $8 per unit $5 per unit Each cabinet sells for $72 and has direct materials costs of $32 incurred at the start of the machining operation. Buffalo Ltd has no other variable costs. Buffalo Ltd can sell whatever output it produces. The following requirements refer only to the preceding data.

There is no connection between the requirements.

Chapter 16: Balanced scorecard: quality, time and the theory of constraints 647 M16_HORN3377_02_LT_C16.indd 647 2/09/13 3:59 PM Required 1 Buffalo Ltd is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1000 units. The annual cost of these jigs and tools is $30000. Should Buffalo Ltd acquire these tools? Show your calculations.