Theory of constraints, throughput margin, and relevant costs. Nevada Industries manufactures electronic testing equipment. Nevada 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):
Equipment Manufactured
Equipment Installed
Annual capacity
400 units per year
250 units per year
Equipment manufactured and installed
250 units per year
250 units per year
Nevada manufactures only 250 units per year because the installation department has only enough capacity to install 250 units. The equipment sells for $60,000 per unit (installed) and has direct material costs of $35,000. 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.
Required
1. Nevada's engineers have found a way to reduce equipment manufacturing time. The new method would cost an additional $60 per unit and would allow Nevada to manufacture 20 additional units a year. Should Nevada implement the new method? Show your calculations