=+8-33 KKK Product mix, special order (N. Melumad, adapted) OBJECTIVES 2, 5 Pendleton Engineering makes cutting tools for metalworking operations. It makes two types of tools: R3, a regular cutting tool, and HP6, a high-precision cutting tool. R3 is manufactured on a regular machine but HP6 must be manufactured on both the regular machine and a high-precision machine. The following information is available:

R3 HP6 Selling price $100 $150 Variable manufacturing cost per unit $60 $100 Variable marketing cost per unit $15 $35 Budgeted total fixed overhead costs $350 000 $550 000 Hours required to produce one unit on the regular machine 1.0 0.5 Additional information includes:

a Pendleton Engineering faces a capacity constraint on the regular machine of 50000 hours per year.