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Indiana Regional Industries makes an electronic component in two departments, Machining and Assembly.
Indiana Regional Industries 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 $200 per unit. All direct material cost is incurred in the Machining Department. All other costs of operating the two departments are fixed costs. Indiana Regional can sell as many units of this electronic component as it produces at a selling price of $600 per unit.
a) 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.
b) A contractor offers to build an assembly for 15,000 units at a cost of $3,000,000. Should Indiana Regional accept the offer from the subcontractor?
c) How do the answers in parts (a) and (b) relate to the theory of constraints?
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