How would answer this question?

Part 1 Midas Touch Tools (MTT) makes cutting tools for metalworking operations. It makes two types of tools: LC115, a regular cutting tool, and CB698, a high precision cutting tool. LC115 is manufactured on a regular machine, but CB698 must be manufactured on both the regular machine and a high precision machine.

The following information is available:

LC115

Selling price $200

Variable manufacturing cost per unit $120

Variable marketing cost per unit $30

Budgeted total fixed overhead costs$700,000

Hours required to produce one unit on the regular machine 1.0

CB698

Selling price $300

Variable manufacturing cost per unit $200

Variable marketing cost per unit $70

Budgeted total fixed overhead costs $1,100,000

Hours required to produce one unit on the regular machine 0.5

Additional information includes the following:

a. MTT faces a capacity constraint on the regular machine of 50,000 hours per year. The capacity of the high-precision machine is not a constraint.

b. Of the $1,100,000 budgeted fixed overhead costs of CB698, $600,000 are lease payments for the high-precision machine. This cost is charged entirely to CB698 because MTT uses the machine exclusively to produce CB698. The company can cancel the lease agreement for the high-precision machine at any time without penalties. All other overhead costs are fixed and cannot be changed.

REQUIRED:

A. What product mix that is, how many units of LC115 and CB698 will maximise MTTs operating income? Show your calculations.

B. Suppose MTT can increase the annual capacity of its regular machines by 15,000 machinehours at a cost of $300,000. Should MTT increase the capacity of the regular machines by 15,000 machinehours? By how much will MTTs operating income increase or decrease? Show your calculations.

C. Suppose that the capacity of the regular machines has been increased to 65,000 hours. MTT has been approached by Clark Corporation to supply 20,000 units of another cutting tool, VY237, for $240 per unit. MTT must either accept the order for all 20,000 units or reject it totally. VY237 is exactly like LC115 except that its variable manufacturing cost is $140 per unit. (It takes 1 hour to produce one unit of VY237 on the regular machine, and variable marketing cost equals $30 per unit.) What product mix should MTT choose to maximize operating income? Show your calculations. Page 10 of 10 Question Four (continued) Part 2 Brentford Corporation has four operating divisions. The budgeted revenues and expenses for each division for 2021 follows:

Divisions Sales

Alpha 504,000

Bravo 948000

Charlie 960000

Delta $ 1,240,000

Division Cost of Goods Sold

Alpha 440,000

Bravo 930,000

Charlie 765,000

Delta 925,000

Divions: Selling, general and administrative expenses

Alpha 96,000

Bravo 202,500

Charlie 144,000

Delta 210,000

Divions Operating income/loss

Alpha $ (32,000)

Bravo $ (184,500)

Delta $ 51,000

Charlie $ 105,000

Further analysis of costs reveals the following percentages of variable costs in each division:

Divisions Cost of Goods Sold

Alpha 85%

Bravo 80%

Charlie 90%

Delta 85%

Divisions for Selling, general and administrative expenses

Alpha 50%

Bravo 60%

Charlie 60%

Delta 60%

Closing down any division would result in savings of 40% of the fixed costs of that division. Top management is very concerned about the unprofitable divisions (Alpha and Bravo) and is considering closing them for the year.

REQUIRED:

A. Calculate the increase or decrease in operating income if Brentford closes Alpha. Explain whether Brentford should close Alpha.

B. Calculate the increase or decrease in operating income if Brentford closes Bravo. Explain whether Brentford should close Bravo.

C. What other factors should top management of Brentford consider before deciding to close either Alpha or Bravo?