Megaplex Manufacturing Corporation makes an electronic component in two departme
ID: 2570243 • Letter: M
Question
Megaplex Manufacturing Corporation makes an electronic component in two departments, Machining and Assembly. The capacity per month is 60,000 units in the Machining Department and 40,000 units in the Assembly Department. The only variable cost of the product is direct material of $150 per unit. All direct material cost is incurred in the Machining Department. All other costs of operating the two departments are fixed costs. Megaplex can sell as many units of this electronic component as it produces at a selling price of $450 per unit.
Required:
a) Megaplex’s Machining managers believe that they could increase the capacity in their department by 10,000 units, if they were able to increase fixed costs by $50,000. Should the money be spent? Explain.
b) An outside contractor offers to do assembly for 10,000 units at a cost of $1,800,000. Should Megaplex accept the offer from the subcontractor? Show calculations.
c) How do your answers in parts (a) and (b) relate to the theory of constraints? Explain.
Explanation / Answer
Dear Student Thank you for using Chegg Please find below the answer and please give thumbs up Statementshowing Computations Paticulars Amount a) No if the capacity of assembling cannot be increased and there is no option of outside purchase But if increasing capcity of assembling or outside purchase if available then: Sales revenue from 10,000 units = 10000*450 4,500,000.00 Direct Material cost = 10000*150 (1,500,000.00) Fixed costs (50,000.00) Income before assembling costs 2,950,000.00 Yes the money should be spent in case company is able to ensure that they can do the assembling by increasing the capacity or from outside purchase by spending maximum amount of 2,950,000 b) Sales revenue from 10,000 units = 10000*450 4,500,000.00 Direct Material cost = 10000*150 (1,500,000.00) Fixed costs (50,000.00) Assembling by outside contactor (1,800,000.00) Income 1,150,000.00 Yes accept the offer c) Answer to a is no since increasing capacity of assembling department is also required in addition to increaseing capacity of machining deptt….otherwise there is no point in increasing machining deptt capacity as it has already higher capacity then assembling deptt