Garcia Precision Tools makes cutting tools for metalworking operations. It makes two types of tools: A6, a regular cutting tool, and EX4, a high-precision cutting tool. A6 is manufactured on a regular machine, but EX4 must be manufactured on both the regular machine and a high-precision machine. The following information is available:

Requirement 1. What product mixthat is, how many units of A6 and EX4will maximize Garcia's operating income? Show your calculations. (Enter an amount in each input cell including zero balances.) Begin by calculating the benefit from only selling A6 or EX4.

		A6	EX4
Contribution margin per hour of the constrained resource		$33	$76
	Hours of constrained resource	50,000	50,000
Total contribution margin		$1,650,000	$3,800,000
Less:	Lease costs of the high-precision machine	0	275,000
Net relevant benefit		$1,650,000	$3,525,000

Part 2

Garcia should use its capacity to produce

EX4 A6 since the net relevant benefit is

higher

lower

. The additional contribution from selling EX4 rather than A6 is

not enough

enough

to cover the additional costs of leasing the high-precision machine.

	A6	EX4
Selling price	$90	$190
Variable manufacturing cost per unit	$45	$125
Variable marketing cost per unit	$12	$27
Budgeted total fixed overhead costs	$375,000	$575,000
Hours required to produce one unit on the regular machine	1.0	0.5

Additional information includes the following:

a.Garcia 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 $575,000 budgeted fixed overhead costs of EX4, $275,000 are lease payments for the high-precision machine. This cost is charged entirely to EX4 because Garcia 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.

Please help. I dont know to get the answers.

1.What product mixthat is, how many units of A6 and EX4will maximize Garcia's operating income? Show your calculations.

2. Suppose Garcia can increase the annual capacity of its regular machines by 10,000 machine-hours at a cost of $120,000. Should Garcia increase the capacity of the regular machines by 10,000 machine hours? By how much will Garcia's operating income increase or decrease? Show your calculations.

3. Suppose that the capacity of the regular machines has been increased to 60,000 hours. Garcia has been approached by Moriarty Corporation to supply 22,000 units of another cutting tool, V2, for $153 per unit.Garcia must either accept the order for all 22,000

units or reject it totally. V2 is exactly like A6 except that its variable manufacturing cost is $55 per unit. (It takes 1 hour to produce one unit of V2 on the regular machine, and variable marketing cost equals $12 per unit.) What product mix should Garcia choose to maximize operating income? Show your calculations.