The Denver Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information:

Machining Finishing

Annual capacity 120,000 units 100,000 units

Annual production 100,000 units 100,000 units

Fixed operating costs (excluding direct materials) $600,000 $300,000

Fixed operating costs per unit produced $6 per unit $3 per unit

($600,000/100,000; $300,000/100,000)

Each cabinet sells for

$ 75$75

and has direct material costs of

$ 35$35

incurred at the start of the machining operation.

DenverDenver

has no other variable costs.

DenverDenver

can sell whatever output it produces. The following requirements refer only to the preceding data. There is no connection between the requirements.Read the requirements

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Requirement 1.

Denver is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,150units. The annual cost of these jigs and tools is $35,000. Should Denver acquire these tools? Show your calculations.

Producing 1,150 more units will generate less or more contribution (throughput) margin and operating income because

finishing is a bottleneck operation; machining is not or machining is a bottleneck operation; finishing is not

.Select the formula, then enter the amounts to calculate the change in throughput contribution.

				Change in throughput
	x		=	contribution
	x		=

Should Denver acquire these tools?