With your group members, work together to answer the following questions about relevant costs and decision making. At the end of the class, each person needs to turn in their own handwritten work in order to receive credit. This extra credit assignment is worth up to 10 extra credit points (1% point). The assignment will be graded based on effort AND accuracy. All work must be shown to receive full credit. PROBLEM 1 - Product Mix when capacity constrained 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: A6 EX4 Selling price S 180 $ 280 Variable manufacturing cost per unit $ 110 $ 190 $ Variable marketing cost per unit 20 $ FO Budgeted total fixed overhead coats $700,000 $1,100,000 10 Hours required to produce one unit on the regular machine 05 Additional information includes the following: Gormley 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. mated fixed overhead costs of EX4. $600,000 are lease payments for . PROBLEM! - Product Mix when capacity constrained Gormley Precision Tools makes cutting tools for metalworking operations. It makes two types of fools: A6, a regular cutting tool, and EX4, a high-precision cutting tool. A6 is manufactured on a regular machine, but EX 4 must be manufactured on both the regular machine and a high-precision machine. The following information is available: A6 5 100 5 110 5 20 won.co 10 EX4 5 200 $ 190 5 BLO Selling price Variable manufacturing cost per unit Variable marketing cost per unit overheden Her wont regular machine Additional information includes the following Gormley 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 or 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. All other overhead costs are fixed and cannot be changed. There is current demand of 100,000 units of A6 and 150,000 units of EX4. . A. What product mix-that is, how many units of A6 and EX4 should Gormley produce to maximize net income? FYA B. Suppose Gormley can increase the annual capacity of its regular machines by 15,000 machine- hours at a cost of $300,000. What is the new product mix of A6 and EX4 that will maximize the company's NOI? By how much will Gormley's operating income increase or decrease? LEM 2 - Accepting a Special Order ald Orchid Corporation is working at full production capacity producing 13,000 units of a noduct Everlast. The projected contribution format income statement for next month
