Gormley 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 in the data table provided. (Click to view the information.) Information A6 EX4 Selling price $ 180 $ 280 Variable manufacturing cost per unit $ 110 $ 190 Variable marketing cost per unit $ 20 $ 60 Budgeted total fixed overhead costs $ 700,000 $ 1,100,000 Hours required to produce one unit on the regular machine 1.0 0.5 Additional information includes the following: a. Gormley 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 $1,100,000 budgeted fixed overhead costs of EX4, $600,000 are lease payments for the high-precision machine. This cost is charged entirely to EX4 because Gormley 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. Print Done X 1 Required - X 1. What product mix-that is, how many units of A6 and EX4-will maximize Gormley's operating income? Show your calculations. 2. Suppose Gormley can increase the annual capacity of its regular machines by 15,000 machine-hours at a cost of $300,000. Should Gormley increase the capacity of the regular machines by 15,000 machine hours? By how much will Gormley's operating income increase or decrease? Show your calculations. 3. Suppose that the capacity of the regular machines has been increased to 65,000 hours. Gormley has been approached by Clark Corporation to supply 20,000 units of another cutting tool, V2, for $240 per unit. Gormley must either accept the order for all 20,000 units or reject it totally. V2 is exactly like A6 except that its variable manufacturing cost is $130 per unit. (It takes one hour to produce one unit of V2 on the regular machine, and variable marketing cost equals $20 per unit.) What product mix should Gormley choose to maximize operating income? Show your calculations. Print Done Required Requirement 1. What product mix-that is, how many units of A6 and EX4-will maximize Gormley's operating income? Show your calculations. Begin by calculating the benefit from only selling A6 or EX4. (Enter an amount in each input cell, including zero balances.) X Hours of constrained resource Less: Net relevant benefit A6 EX4 Netfelevant Denient Gormley should use its capacity to produce machine. since the net relevant benefit is The additional contribution from selling EX4 rather than A6 is to cover the additional costs of leasing the high-precision Requirement 2. Suppose Gormley can incre hours? By how much will Gormley's operatin A6 EX4 al capacity of its regular machines by 15,000 machine-hours at a cost of $300,000. Should Gormley increase the capacity of the regular machines by 15,000 machine ease or decrease? Show your calculations. Choose from any list or enter any number in the input fields and then continue to the next question. since the net relevant benefit is The additional contribution the annual capacity of its regular n Come increase or decrease? Show higher. 100 machine-hours 3. lower. contribution from selling EX4 rather than A6 is to cover the additional costs of chine-hours at a cost of $300,000. Should Gorm enough not enough city of the regular mach Requirement 2. Suppose Gormley can increase the annual capacity of its regular machines by 15,000 machine-hours at a cost of $300,000. Should Gormley increase the capacity of the regular machines by 15,000 machine hours? By how much will Gormley's operating income increase or decrease? Show your calculations. Begin by calculating the benefit from only selling A6 or EX4 with the increased capacity of the regular machine. (Enter an amount in each input cell, including zero balances.) x Hours of constrained resource A6 EX4 Less: Cost of increasing capacity Net relevant benefit Should Gormley increase the capacity of the regular machines by 15,000 machine hours? By how much will Gormley's operating income increase? Should Gormley increase the capacity of the regular machines by 15,000 machine hours? By how much will Gormley's operating income increase? increase the capacity of the regular machine by 15,000 machine hours. Gormley's operating income will increase by $ Gormley Requiren Gormley i should t the capacity of the regular machines has been increased to 65,000 hours. Gormley has been approached by Clark Corporation he order for all 20,000 units or reject it totally. V2 is exactly like A6 except that its variable manufacturing cost is $130 per unit. (It s $20 per unit.) What product mix should Gormley choose to maximize operating income? Show your calculations. First detel at should be used to determine if Gormley should accept Clark's order. variable n should not Requirement 3. Suppose that the capacity of the regular machines has been increased to 65,000 hours. Gormley has been approached by Clark Corporation to supply 20,000 units of another cutting tool, V2, for $240 per unit. Gormley must either accept the order for all 20,000 units or reject it totally. V2 is exactly like A6 except that its variable manufacturing cost is $130 per unit. (It takes one hour to produce one unit of V2 on the regular machine, and variable marketing cost equals $20 per unit.) What product mix should Gormley choose to maximize operating income? Show your calculations. First determine the amount that should be used to determine if Gormley should accept Clark's order. A6 EX4 V2 Gormley accept Clark's order because the for V2 is the input coll including zero balances Gormley Next dete should accept Clark's order because the should not for V2 is the ix for A6 and EX4 that will maximize operating income along with the decision you made about Clarl A6 EX4 A6 EX4 V2 the decision you made ab pt Clark's order because the mix for A6 and EX4 that will i for V2 is the contribution margin per hour contribution margin per unit EX4 d resource selling price per unit variable costs per unit for V2 is the ting income along with the d A6 about Cla highest. EX lowest. Next determine the product mix for A6 and EX4 that will maximize operating income along with the decision you made about Clark's order. (Enter an amount in each input cell, including zero balances.) X Hours of constrained resource Less: A6 EX4 Net relevant benefit What product mix should Gormley 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 units of V2, units of A6, and units of EX4