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Hernon 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: (Click to view the information.) Read the requirements. Requirement 1. What product mix - that is, how many units of A6 and EX4 - will maximize Hernon'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 $ 25 $ 40 x Hours of constrained resource 50,000 50,000 Total contribution margin $ 1,250,000 $ 2,000,000 Less: Lease costs of the high-precision machine 350,000 1,250,000 Net relevant benefit $ $ 1,650,000 Hernon should use its capacity to produce EX4 since the net relevant benefit is higher . The additional contribution from selling EX4 rather than A6 is enough to cover the additional costs of leasing the high-precision machine.Requirement 2. Suppose Hernon can increase the annual capacity of its regular machines by 20,000 machine-hours at a cost of $100,000. Should Hernon increase the capacity of the regular machines by 20,000 machine hours? By how much will Hernon's operating income increase or decrease? Show your calculations. Begin by calculating the benet from only selling A6 or EX4 with the increased capacity of the regular machine. (Enter an amount in each input cell including zero balances.) A6 EX4 Contribution margin per hour of the constrained resource x Hours of constrained resource Total contribution margin Less: Lease costs of the high-precision machine Cost of increasing capacity Net relevant benet A6 EX4 Selling price $ 110 $ 155 Variable manufacturing cost per unit $ 80 $ 120 Variable marketing cost per unit $ 5 $ 15 Budgeted total xed overhead costs $ 300,000 $ 575,000 Hours required to produce one unit on the regular machine 1.0 0.5 Additional information includes the following: a. Hernon 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 xed overhead costs of EX4, $350,000 are lease payments for the high-precision machine. This cost is charged entirely to EX4 because Hernon 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 xed and cannot be changed