Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 52

Theory of Constraints
CompDesk, Inc., makes a single model of an ergonomic desk (with chair) for computer usage. The desk is manufactured in building 1, and the chair is manufactured in building 2. Monthly capacities and production levels are as follows:

The company will sell a desk only with a chair and can sell 500 desks per month. The units (desk with chair) sell for $300 each and have a variable cost of $125 each.
Required
a. Is there a bottleneck at CompDesk If so, where is it
b. CompDesk's production supervisors state they could increase building 1's capacity by 100 desks per month by producing desks on the weekend. Producing on the weekend would not affect the sales price. Variable cost per unit would increase by $25 for those produced on the weekend because of the premium paid to labor. Fixed costs would also increase by $10,000 per month. Should CompDesk produce desks on the weekend
c. Independent of the situation in requirement ( b ), CompDesk could add additional equipment and workers to building 1, which would increase its capacity by 100 desks per month. This would not affect sales price or variable cost per unit but would increase fixed costs by $20,000 per month. Should CompDesk add the additional equipment and workers to building 1