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 highprecision machine. The following information is available:

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.

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