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mon Precision Tools makes odling tools for men working operis I wou of Maretar cutting tool and Expresion tool is waard on a regular marine, EXAmst bennected both the regular machine and a high precision machine. The flowing information is available Click to view the information)
- X Data table A6 EX4 A 0.5 Selling price $ 120 $ 165 Variable manufacturing cost per unit 70 $ 110 Variable marketing cost per unit $ 20 $ 35 Budgeted total fixed overhead costs 300,000 $ 700,000 Hours required to produce one unit on the regular machine 1.0 Additional information includes the following: a. Simon faces a capacity constraint on the regular machine of 50,000 hours per year. b. The capacity of the high-precision machine is not a constraint. c. Of the $700,000 budgeted fixed overhead costs of EX4, $400,000 are lease payments for the high-precision machine. This cost is charged entirely to EX4 because Simon uses the machine exclusively to produce EX4. The company can cancel the lease agreement for the high-precision machine at any time without penalties d. All other overhead costs are fixed and cannot be changed. Print Done
- X Requirements - 1. What product mix - that is, how many units of A6 and EX4 - will maximize Simon's operating income? Show your calculations. 2. Suppose Simon can increase the annual capacity of its regular machines by 18,000 machine-hours at a cost of $216,000. Should Simon increase the capacity of the regular machines by 18,000 machine hours? By how much will Simon's operating income increase or decrease? Show your calculations. 3. Suppose that the capacity of the regular machines has been increased to 68,000 hours. Simon has been approached by Ward Corporation to supply 25,000 units of another cutting tool, V2, for $145 per unit. Simon must either accept the order for all 25,000 units or reject it totally. V2 is exactly like A6 except that its variable manufacturing cost is $80 per unit. (It takes 1 hour to produce one unit of V2 on the regular machine, and variable marketing cost equals $20 per unit.) What product mix should Simon choose to maximize operating income? Show your calculations. Print Done
Requirement 1. What product mix - that is, how many units of A6 and EX4 - will maximize Simon's operating income? Show your calculations Begin by calculating the benefit from only selling A6 or EX4. A6 EX4 Hours of constrained resource Less: Net relevant benefit