Theory of constraints, throughput contribution, relevant costs.
Autronic AG manufactures electronic testing equipment. Autronic also installs the equip- ment at the customer's site 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 equipment):
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Equipment manufactured
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Equipmentinstalled
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Annual capacity Equipment
manufactured and installed
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400 units per year
300 units per year
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300 units per year
300 units per year
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Autronic manufactures only 300 units per year because the Installation Department has only enough capacity to install 300 units. The equipment sells for €40 000 per unit (installed) and has direct materials costs of €15 000. All costs other than direct materials costs are fixed. The following requirements refer only to the preceding data; there is no connection between the situations.
Required
1. Autronic's engineers have found a way to reduce equipment manufacturing time. The new method would cost an additional €50 per unit and would allow Autronic to manufacture 20 additional units a year. Should Autronic implement the new method?
2. Autronic's designers have proposed a change in the direct materials that would increase direct materials costs by €2000 per unit. This change would enable Autronic to install 320 units of equipment each year. If Autronic makes the change, it will implement the new design on all equipment sold. Should Autronic use the new design?
3. A new installation technique has been developed that will enable Autronic's engineers to install 10 additional units of equipment a year. The new method will increase installation costs by €50 000 each year. Should Autronic implement the new technique?
4. Autronic 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.