THEORY OF CONSTRAINTS, THROUGHPUT MARGIN, RELEVANT COSTS The Phoenix Corporation manufactures filing cabinets in two operations machining and finishing It provides the following information Machining Finishing Annual capacity 160,000 units 135,000 units Annual production 135,000 units 135,000 units Fixed operating costs (excluding direct materials) $ 1,620,000 $ 1,350,000 Fixed operating costs per unit produced $12 per unit $10 per unit ($1,620,000 135,000 $1,350,000 135,000) Each cabinet sells for $100 and has direct material costs of $70 incurred at the start of the machining operation Phoenix has no other variable costs Phoenix can sell whatever output it produces The following requirements refer only to the preceding data There is no connection between the requirements 1 Phoenix is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,400 units The annual cost of these jigs and tools is $40,000 Should Phoenix acquire these tools Show your calculations 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 14,000 units and would cost $22,000 per year Should Phoenix implement the change Show your calculations 3 An outside contractor offers to do the finishing operation for 18,000 units at $20 per unit, double the $10 per unit that it costs Phoenix to do the finishing in house Should Phoenix accept the subcontractors offer Show your calculations 4 The Henry Corporation offers to machine 5,600 units at $6 per unit, half the $12 per unit that it costs Phoenix to do the machining in house Should Phoenix accept Henrys offer Show your calculations 5 Phoenix produces 1,800 defective units at the machining operation What is the cost to Phoenix of the defective items produced Explain your answer briefly 6 Phoenix produces 1,800 defective units at the finishing operation What is the cost to Phoenix of the defective items produced Explain your answer briefly

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THEORY OF CONSTRAINTS, THROUGHPUT MARGIN, RELEVANT COSTS. The Phoenix Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information: Machining

THEORY OF CONSTRAINTS, THROUGHPUT MARGIN, RELEVANT COSTS. The Phoenix Corporation manufactures filing cabinets in two operations: machining and finishing. It provides the following information:

	Machining	Finishing
Annual capacity	160,000 units	135,000 units
Annual production	135,000 units	135,000 units
Fixed operating costs (excluding direct materials)	$ 1,620,000	$ 1,350,000
Fixed operating costs per unit produced	$12 per unit	$10 per unit
($1,620,000 / 135,000; $1,350,000 / 135,000)

Each cabinet sells for $100 and has direct material costs of $70 incurred at the start of the machining operation. Phoenix has no other variable costs. Phoenix can sell whatever output it produces. The following requirements refer only to the preceding data. There is no connection between the requirements.

1. Phoenix is considering using some modern jigs and tools in the finishing operation that would increase annual finishing output by 1,400 units. The annual cost of these jigs and tools is $40,000. Should Phoenix acquire these tools? Show your calculations.



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 14,000 units and would cost $22,000 per year. Should Phoenix implement the change? Show your calculations.



3. An outside contractor offers to do the finishing operation for 18,000 units at $20 per unit, double the $10 per unit that it costs Phoenix to do the finishing in-house. Should Phoenix accept the subcontractors offer? Show your calculations.



4. The Henry Corporation offers to machine 5,600 units at $6 per unit, half the $12 per unit that it costs Phoenix to do the machining in-house. Should Phoenix accept Henrys offer? Show your calculations.



5. Phoenix produces 1,800 defective units at the machining operation. What is the cost to Phoenix of the defective items produced? Explain your answer briefly.



6. Phoenix produces 1,800 defective units at the finishing operation. What is the cost to Phoenix of the defective items produced? Explain your answer briefly.