Industries manufactures electronic testing equipment. Nevada also installs the equipment at customers' sites 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 Manufacture Equipment Installed

Annual capacity 400 250

Equipment manufactured and installed 250 250

Nevada manufactures only 250 units per year because the installation department has only enough capacity to install 250 units. The equipment sells for S60,000 per unit (installed) and has direct material costs of $35,000. All costs other than direct material costs are fixed. The following requirements refer only to the preceding data. There is no connection between the requirements.

1. Nevada's designers have proposed a change in direct materials that would increase direct material costs by $2,000 per unit. This change would enable Nevada to install 280 units of equipment each year. If Nevada makes the change, it will implement the new design on all equipment sold. Should Nevada use the new design? Show your calculations.

2. Nevada is considering how to motivate workers to improve their productivity (output per hour). One proposal is to evaluate and compensate workers in the installation department on the basis of their productivities. Do you think the new proposal is a good idea? Explain briefly.