The Houston Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information: (Click the icon to view the department information.) Each cabinet sells for $85 and has direct material costs of $55 incurred at the start of the machining operation. Houston has no other variable costs. Houston 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. Requirement 1. Houston is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,350 units. The annual cost of these jigs and tools is $40,000. Should Houston acquire these tools? Show your calculations. Producing 1,350 more units will generate contribution (throughput) margin and operating income because Select the formula, then enter the amounts to calculate the change in throughput contribution. Change in throughput contribution Should Houston acquire these tools? The in throughput contribution margin is the incremental costs by Therefore, Houston implement the new design. Data table Machining Finishing - Annual capacity Annual production Fixed operating costs (excluding direct materials) Fixed operating costs per unit produced ($640,000 160,000; $160,000 160,000) 180,000 units 160,000 units 160,000 units 160,000 units $640,000 $160,000 $4 per unit $1 per unit Requirement 2. The production manager of the Machining Department has submitted a proposal to do faster setups that would increase the annual capacity of the Machining Department by 9,500 units and would cost $22,000 per year. Should Houston implement the change? Show your calculations. Increasing its capacity further increase contribution (throughput) margin. Houston implement the change to increase production. Requirement 3. An outside contractor offers to do the finishing operation for 8,000 units at $3 per unit, triple the $1 per unit that it costs Houston to do the finishing in-house. Should Houston accept the subcontractor's offer? Show your calculations. Select the formula you will use to calculate the change in throughput contribution. Then, enter the amounts in the formula and calculate the change in throughput contribution. Change in throughput contribution Houston contract with an outside contractor to do 8,000 units of finishing at $3 per unit because the in throughput contribution is incremental costs by Requirement 4. The Hasting Corporation offers to machine 6,200 units at $2 per unit, half the $4 per unit that it costs Houston to do the machining in-house. Should Houston accept Hasting's offer? Show your calculations. Operating costs in the Machining Department of $640,000, or $4 per unit, are costs. Houston save any of these costs by subcontracting machining 6,200 units to Hasting. Total costs will be greater by Houston accept Hasting's order. Requirement 5. Houston produces 2,800 defective units at the machining operation. What is the cost to Houston of the defective items produced? Explain your answer briefly. The cost of 2,800 defective units at the machining operation is Because the Machining Department has a capacity of 180,000 units, it produce and transfer the annual production to the Finishing Department. Therefore, there Machining Department. opportunity cost of producing defective units in the Requirement 6. Houston produces 2,800 defective units at the finishing operation. What is the cost to Houston of the defective items produced? Explain your answer briefly. The cost of 2,800 defective units in the Finishing Department is Because the Finishing Department a bottleneck operation, the cost of a defective unit is because of the of contribution margin