Herro Manufacturing Corporation makes an electronic component in two departments, Machining and Assembly. The capacity per month is $130,000$ units in the Machining Department and $100,000$ units in the Assembly Department. The only variable cost of the product is direct material of $$300$ per unit. All direct material cost is incurred in the Machining Department. All other costs of operating the two departments are fixed costs. Herro can sell as many units of this electronic component as it produces at a selling price of $$700$ per unit.

Required:

a$)$ Herro$$s Machining managers believe that they could increase the capacity in their department by $15,000$ units, if they were able to increase fixed costs by $$200,000.$ Should the money be spent? Explain.

b$)$ An outside contractor offers to do assembly for $20,000$ units at a cost of $$5,000,000.$ Should Herro accept the offer from the subcontractor? Show calculations.

c$)$ How do your answers in parts $($a$)$ and $($b$)$ relate to the theory of constraints? Explain.