=+3 Suppose that the capacity of the regular machines has been increased to 65000 hours. Pendleton Engineering has been approached by Carter Ltd to supply 20000 units of another cutting tool, S3, for $120 per unit. Pendleton Engineering must either accept the order for all 20000 units or reject it totally. S3 is exactly like R3 except that its variable manufacturing cost is

$70 per unit. (It takes one hour to produce one unit of S3 on the regular machine and variable marketing cost equals $15 per unit.) What product mix should Pendleton Engineering choose to maximise operating profit? Show your calculations.

Chapter 8: Decision making and relevant information 335 M08_HORN3377_02_LT_C08.indd 335 2/09/13 3:42 PM