Florida Company manufactures electronic testing equipment and installs the equipment at customers sites. Additional information on the Manufacturing and Installation Departments is as follows:

Florida manufactures only 300 units per year because the Installation Department has only enough capacity to install 300 units. The equipment sells for $40,000 per unit (installed) and has direct material costs of $15,000. All costs other than direct material costs are fixed.

	Manufactured Department	Installation Department
Annual capacity	350 units	300 units
Equipment manufactured and installed	300 units	300 units

Floridas designers have proposed a change in direct materials that would increase direct material costs by $2,000 per unit produced. This change would enable Florida to install 320 units of equipment each year. If Florida makes the change, it will implement the new design on all equipment sold. Should Florida use the new design? Show your calculations.

What is the cost of a defective unit produced at (i) the Manufacturing Department, (ii) the Installation Department? Support with figures.

The vice president of Florida Company recommended improving manufacturing efficiency to achieve the target cost of the Company. The production manager argued that it is the product design department that should be held responsible for reducing costs. Whats your opinion? Explain.