Theory of constraints, throughput margin, and relevant costs. Nebraska Industries ma...

Theory of constraints, throughput margin, and relevant costs. Nebraska Industries manufactures electronic testing equipment. Nebraska also installs the equipment at customers’ sites and ensures that it functions smoothly. Additional information on the manufacturing and installation departments is as follows (capacities are expressed in terms of the number of units of electronic testing equipment):

Nebraska manufactures only 275 units per year because the installation department has only enough capacity to install 275 units. The equipment sells for $45,000 per unit (installed) and has direct material costs of $20,000. All costs other than direct material costs are fixed. The following requirements refer only to the preceding data. There is no connection between the requirements.

1. Nebraska’s engineers have found a way to reduce equipment manufacturing time. The new method would cost an additional $50 per unit and would allow Nebraska to manufacture 20 additional units a year. Should Nebraska implement the new method? Show your calculations.

2. Nebraska’s designers have proposed a change in direct materials that would increase direct material costs by $2,000 per unit. This change would enable Nebraska to install 310 units of equipment each year. If Nebraska makes the change, it will implement the new design on all equipment sold. Should Nebraska use the new design? Show your calculations.

3. A new installation technique has been developed that will enable Nebraska’s engineers to install 7 additional units of equipment a year. The new method will increase installation costs by $55,000 each year. Should Nebraska implement the new technique? Show your calculations.

4. Nebraska is considering how to motivate workers to improve their productivity (output per hour). One proposal is to evaluate and compensate workers in the manufacturing and installation departments on the basis of their productivities. Do you think the new proposal is a good idea? Explain briefly.