Requirement $2.$ Suppose

SimonSimon

can increase the annual capacity of its regular machines by

$20$ comma $00020,000$

$$machine$-$hours at a cost of

$ $240$ comma $000$$$240,000.$

Should

SimonSimon

increase the capacity of the regular machines by

$20$ comma $00020,000$

machine$$ hours? By how much will

SimonSimon$\text{'}$s

operating income increase or$$ decrease? Show your calculations.

Begin by calculating the benefit from only selling A$6$ or EX$4$ with the increased capacity of the regular machine. $($Enter an amount in each input cell including zero$$ balances.$)$

$$

$$

A$6$

EX$4$

Contribution margin per hour of the constrained resource

$$15$

$$60$

$$

Hours of constrained resource

$70,000$

$70,000$

Total contribution margin

$$1,050,000$

$$4,200,000$

Less:

Lease costs of the high$-$precision machine

$0$

$325,000$

Cost of increasing capacity

$240,000$

$240,000$

Net relevant benefit

$$810,000$

$$3,635,000$

Part $4$

Should

SimonSimon

increase the capacity of the regular machines by

$20$ comma $00020,000$

machine$$ hours? By how much will

SimonSimon$\text{'}$s

operating income$$ increase?

Simon

should

increase the capacity of the regular machine by $20,000$ machine hours. Simon's operating

income will increase by

$$960,000$

$.$

Part $5$

Requirement $3.$ Suppose that the capacity of the regular machines has been increased to

$70$ comma $00070,000$

hours.

SimonSimon

has been approached by

DelaneyDelaney

Corporation to supply

$22$ comma $00022,000$

units of another cutting$$ tool, V$2,$ for

$ $170$$$170$

per unit.

SimonSimon

must either accept the order for all

$22$ comma $00022,000$

units or reject it totally. V$2$ is exactly like A$6$ except that its variable manufacturing cost is

$ $90$$$90$

per unit.$($It takes one hour to produce one unit of V$2$ on the regular$$ machine, and variable marketing cost equals

$ $10$$$10$

per$$ unit.$)$ What product mix should

SimonSimon

choose to maximize operating$$ income? Show your calculations.

$$First$,$ determine the amount that should be used to determine if

SimonSimon

should accept

DelaneyDelaney$\text{'}$s

order.

$$

$$

A$6$

EX$4$

V$2$

Contribution margin per hour of the constrained resource

$$15$

$$60$

$$70$

Part $6$

SimonSimon

should

accept

DelaneyDelaney$\text{'}$s

order.

Part $7$

$$Next$,$ determine the product mix for A$6$ and EX$4$ that will maximize operating income along with the decision you made about

DelaneyDelaney$\text{'}$s

order. $($Enter an amount in each input cell including zero$$ balances.$)$

$$

$$

A$6$

EX$4$

Contribution margin per hour of the constrained resource

$$15$

$$60$

$$

Hours of constrained resource

$48,000$

$48,000$

Total contribution margin

$$720,000$

$$2,880,000$

Less:

Lease costs of the high$-$precision machine

$0$

$325,000$

Net relevant benefit

$$720,000$

$$2,555,000$

Part $8$

What product mix should

SimonSimon

choose to maximize operating$$ income? $($Enter an amount in each input$$ cell, including zero$$ balances.$)$

Based on the above calculations, the product mix that maximizes operating income is

$22000$

units of V$2,$

$0$

units of A$6,$ and

units of EX$4.$