Rushton 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: E (Click to view the information.) Read the requirements. Requirement 1. What product mix that is, how many units of A6 and EX4 - will maximize Rushton's operating income? Show your calculations. (Enter an amount in each input cell including zero balances.) Begin by calculating the benefit from only selling A6 or EX4. A6 EX4 x Data Table Contribution margin per hour of the constrained resource $ 28 18 50,000 50,000 Hours of constrained resource Total contribution margin $ 1,400,000 900000 A6 EX4 Less: 0 Lease costs of the high-precision machine 350,000 1,400,000 550000 Net relevant benefit Selling price $ 80 $ 155 Variable manufacturing cost per unit $ 40 $ 110 Variable marketing cost per unit $ 12 $ 27 Budgeted total fixed overhead costs $ 400,000 $ 575,000 Hours required to produce one unit on the regular machine 1.0 0.5 Additional information includes the following: a. Rushton 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 $575,000 budgeted fixed overhead costs of EX4, $350,000 are lease payments for the high-precision machine. This cost is charged entirely to EX4 because Rushton 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 i Requirements 1. What product mix that is, how many units of A6 and EX4 - will maximize Rushton's operating income? Show your calculations. 2. Suppose Rushton can increase the annual capacity of its regular machines by 12,000 machine-hours at a cost of $144,000. Should Rushton increase the capacity of the regular machines by 12,000 machine hours? By how much will Rushton's operating income increase or decrease? Show your calculations. 3. Suppose that the capacity of the regular machines has been increased to 62,000 hours. Rushton has been approached by Renau Corporation to supply 26,000 units of another cutting tool, V2, for $113 per unit. Rushton must either accept the order for all 26,000 units or reject it totally. V2 is exactly like A6 except that its variable manufacturing cost is $55 per unit. (It takes one hour to produce one unit of V2 on the regular machine, and variable marketing cost equals $12 per unit.) What product mix should Rushton choose to maximize operating income? Show your calculations. Print Done