3. Theory of Constraints:

a. Assuming material is the only truly variable cost, find the throughput margin per unit for:

i. One pool shade

ii. One trellis

b. Assuming the powder coating process is the binding constraint and additional capacity is difficult or too costly to purchase, determine which product Chandler should be making first. Explain how and why you came to this conclusion. Also, show your computations to support your conclusion.

c. Assuming the powder coating process is the binding constraint and additional capacity is difficult or too costly to purchase, determine what mix of products should be made with the existing excess capacity.

d. Determine the incremental throughput margin Chandler would earn if it sold the mix you determined in 3c.

Exhibit 1	Existing Capacity Available and Used and Capacity Costs
		Current capacity and usage (annual)
Resource	Practical Capacity	Cost Driver	Purchased Cost of Capacity	Used Capacity
Design/Drafting	20,000	design hours	$ 500,000.00	19,500
Engineering	15,000	engineering hr	$ 750,000.00	14,750
Fabrication	40,000	parts	$ 30,000.00	39,000
Powder coating	400,000	square feet	$ 1,800,000.00	210,000
Scheduling	750	job setups	$ 756,000.00	640
General factory	80,000	machine hrs	$ 2,400,000.00	64,000
Exhibit 2	Resource needs for potential new products
	Cost Driver	Pool shade requirements	Trellis requirements
Resource
Design/Drafting	design hours	30	20
Engineering	engineering hrs	4	2
Fabrication	parts	40	22
Powder coating	square feet	1600	170
Scheduling	job setups	1	1
General factory	machine hrs	80	10
	Pool shade	Trellis		Desired profit on sales		0.30
Selling price per unit	42,500.00	4,300.00		Demand	Pool shades	120
Material cost per unit	18,750.00	700.00		Demand	Trellises	60

Exhibit 3	Purchase of Additional Capacity
	Purchase price of additional capacity
Resource	Capacity of next step	Cost Driver	Cost of next step
Design/Drafting	2,000	design hours	$ 50,000.00
Engineering	2,000	eng. hrs.	$ 110,000.00
Fabrication	2,500	parts	$ 3,150.00
Powder coating	10,000	square feet	$ 80,000.00
Scheduling	30	job setups	$ 70,000.00
General factory	2,000	machine hrs	$ 36,000.00