Theory of constraints, throughput contribution, relevant costs. Columbia Industries manufactures electronic testing equipment. Columbia also installs the equipment at the cus¬

tomer’s site 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):

Equipment Equipment Manufactured Installed Annual capacity 400 units per year 300 units per year Equipment manufactured and installed 300 units per year 300 units per year Columbia manufactures only 300 units per year because the Installation Department has only enough capacity to install 300 units. The equipment sells for $48,000 per unit

(installed) and has direct materials costs of $18,000. All costs other than direct materials costs are fixed. The following requirements refer only to the preceding data; there is no connection between the situations.

Required 1. Columbia’s engineers have found a way to reduce equipment manufacturing time. The new method would cost an additional $60 per unit and would allow Colorado to manufacture 20 additional units a year. $hould Columbia implement the new method?

2. Columbia’s designers have proposed a change in the direct materials that would increase direct materials costs by $2,400 per unit. This change would enable Columbia to install 320 units of equipment each year. If Columbia makes the change, it will implement the new design on all equipment sold. $hould Columbia use the new design?

3. A new installation technique has been developed that will enable Columbia’s engineers to install 10 additional units of equipment a year. The new method will increase installation costs by $60,000 each year. $hould Columbia implement the new technique?

4. Columbia is considering how to motivate workers to improve their productivity (output per hour). One proposal 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? Explain briefly.