Zamzung is a large technological firm that produces, among other things, microchips. The CD division of Zamzung produces and sells three types of chips directly to the market: a high-performance chip, Talkalot (TL), and two older products called Talkoften (TO) and Talknot (TN). These three products have the following costs per unit:

CD Costs per unit	TN	TO	TL
Direct materials	$2.00	$4.00	$3.00
Direct labor	$3.00	$1.00	$3.00
Manufacturing overhead	$2.00	$3.00	$5.00

Manufacturing overhead in the CD is all allocated fixed costs. All three chips are essentially CPUs that need to be produced using a chip-printing machine with a total capacity of 8,000 machine hours (mhrs) a year. The required machining times per chip are:

	TN	TO	TL
Machine hours per unit	0.10	0.20	0.80

The current market price for the TL is $18 per chip with a maximum external demand of 6,000 units per year. The maximum external demand for the TO is 15,000 units and it is sold at $9 per unit. The maximum external demand for TN is 30,000 units and it is sold at $8 per unit.

Requirements:

Problem 2 Part a (10 points): How many TNs, TOs, and TLs would the CD sell to the external market? That is, what is the optimal product mix? Show your computations.

Problem 2 Part b (10 points): Take your result in Part A as the status quo for the CD. Now assume that a new customer approaches the CD division with a special order: The customer will purchase 5,000 TL chips at a price of $22 each. What would the change in the CD profits be if the special order were accepted? (Hint: you can obviously change the product mix in response to this special order.)

Problem 2 Part c (10 points): Take your result in Part A as the status quo for the CD. Now assume that a new customer approaches the CD division with a special order: The customer will purchase 5,000 TL chips. What is the minimum per unit price CD could accept without reducing profits (relative to the status quo)? (Hint: you can obviously change the product mix in response to this special order.)