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11-43 Product mix, special order. (N. Melumad, adapted) 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 Variable manufacturing cost per unit Variable marketing cost per unit Budgeted total fixed overhead costs Hours required to produce one unit on the regular machine S 180 280 $ 110 S190 $ 20 60 $700,000 $1,100,000 0.5 1.0 Additional information includes the following: a. Gormley 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 $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. d. All other overhead costs are fixed and cannot be changed. 1. What product mix-that is, how many units of A6 and EX4-will maximize Gormley's operating income? Show your calculations

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