The Raleigh 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 $115 and has direct material costs of $75 incurred at the start of the machining operation. Raleigh has no other variable costs. Raleigh 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. Raleigh is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,650 units. The annual cost of these jigs and tools is $40,000. Should Raleigh acquire these tools? Show your calculations. Producing 1,650 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 X Should Raleigh acquire these tools? The the incremental costs by in throughput contribution margin is implement the new design. Therefore, Raleigh 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 12,500 units and would cost $40,000 per year. Should Raleigh implement the change? Show your calculations. Increasing its capacity further increase contribution (throughput) margin. Raleigh implement the change to increase production. Requirement 3. An outside contractor offers to do the finishing operation for 12,000 units at $30 per unit, triple the $10 per unit that it costs Raleigh to do the finishing in-house. Should Raleigh 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 Raleigh contract with an outside contractor to do 12,000 units of finishing at $30 per unit because the in throughput contribution is incremental costs by Requirement 4. The Henry Corporation offers to machine 6,600 units at $6 per unit, half the $12 per unit that it costs Raleigh to do the machining in-house. Should Raleigh accept Henry's offer? Show your calculations. Operating costs in the Machining Department of $1,920,000, or $12 per unit, are costs. Raleigh save any of these costs by subcontracting machining 6,600 units to Henry. Total costs will be greater by Raleigh accept Henry's order. Requirement 5. Raleigh produces 1,600 defective units at the machining operation. What is the cost to Raleigh of the defective items produced? Explain your answer briefly. The cost of 1,600 defective units at the machining operation is Because the Machining Department has a capacity of 190,000 units, it production to the Finishing Department. Therefore, there Machining Department. produce and transfer the annual opportunity cost of producing defective units in the Requirement 6. Raleigh produces 1,600 defective units at the finishing operation. What is the cost to Raleigh of the defective items produced? Explain your answer briefly. The cost of 1,600 defective units in the Finishing Department is V a bottleneck operation, the cost of a defective unit is because of the of Because the Finishing Department contribution margin. - Data Table Machining Finishing 160,000 units 190,000 units 160,000 units 160,000 units Annual capacity Annual production Fixed operating costs (excluding direct materials) Fixed operating costs per unit produced ($1,920,000 = 160,000; $1,600,000 = 160,000) $1,920,000 $1,600,000 $12 per unit $10 per unit
