Theory of constraints, throughput margin, relevant costs. The Mayfield Corporation manufactures filing cabinets in two operations: Machining and Finishing. It provides the following information:

Machining Finishing

Annual capacity 100,000 units 80,000 units

Annual production 80,000 units 80,000 units

Fixed operating costs

(excluding direct materials) $640,000 $400,000

Fixed operating costs per

unit produced

($640,00080,000 ; $400,00080,000) $8 per unit $5 per unit

Each cabinet sells for $72 and has direct material costs of $32 incurred at the start of the machining operation. Mayfield has no other variable costs. Mayfield can sell whatever output it produces. The following requirements refer only to the preceding data. There is no connection between the requirements.

• 1.Mayfieldisconsideringusingsomemodernjigsandtoolsinthefinishingoperationthatwouldincreaseannualfinishingoutputby1,000units.Theannualcostofthesejigsandtoolsis$30,000.ShouldMayfieldacquirethesetools?Showyourcalculations.
• 2.Theproductionmanagerofthemachiningdepartmenthassubmittedaproposaltodofastersetupsthatwouldincreasetheannualcapacityofthemachiningdepartmentby10,000unitsandwouldcost$5,000peryear.ShouldMayfieldimplementthechange?Showyourcalculations.
• 3.Anoutsidecontractorofferstodothefinishingoperationfor12,000unitsat$10perunit,doublethe$5perunitthatitcostsMayfieldtodothefinishingin-house.ShouldMayfieldacceptthesubcontractor'soffer?Showyourcalculations.
• 4. The Hunt Corporation offers to machine 4,000 units at $4 per unit, half the $8 per unit that it costs Mayfield to do the machining in-house. Should Mayfield accept Hunt ' s offer? Show your calculations.