Wolverine Engineering makes two types of grinding tools. Z300 is a regular grinding tool and Q650 is a precision tool. Z300 is manufactured on a regular machine, but Q650 must be manufactured on the regular machine and a high-precision machine. The following information is available:
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Z300
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Q650
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Selling price
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$100
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$150
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Variable manufacturing cost per unit
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$60
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$100
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Variable marketing cost per unit
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$15
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$35
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Budgeted total fixed overhead costs
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$350,000
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$550,000
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Hours required to produce one unit on the regular machine
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1.0
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0.5
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Additional information:
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Wolverine faces a capacity constraint on the regular machine of 50,000 per year.
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The capacity of the high-precision machine is not a constraint.
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Of the $550,000 budgeted fixed overhead costs of Q650, $300,000 are lease payments for the high-precision machine. This cost is charged entirely to Q650 because Wolverine uses the machine exclusively to produce Q650. With some significant negotiation, the lease agreement can be cancelled without penalty.
REQUIRED QUESTIONS:
1.What is the "net relevant benefit in dollars" to operating income for each tool? Please prepare your answer in an Excel table and label everything. All calculations must be shown and everything labeled.
2. What is the product mix (the number of units of Z300 and Q650) that will maximize Wolverine's operating income? Explain the answer. All calculations must be shown.
3.Suppose Wolverine can increase the annual capacity of its regular machines by 15,000 machine-hours at a cost of $150,000. What is the "net relevant benefit in dollars" to operating income for each tool? All calculations must be shown
4. Should Wolverine increase the capacity? Explain the answer. All calculations must be shown to receive credit. Highlight your answer in yellow.
5.Suppose that Wolverine does increase its machine-hour capacity to 65,000 MH. Wolverine has been approached by Clinton Company to supply 20,000 units of another popular grinding tool, W9 for $120 per unit. The deal states that Wolverine must accept the order for all 20,000 units or reject it totally. W9 is exactly like Z300 except that its variable manufacturing cost is $70 per unit. It takes one machine-hour to produce one unit of W9 on the regular machine, and variable marketing cost equals $15 per unit. What is the "net relevant benefit in dollars" to operating income for each tool? All calculations must be shown.
6. What is the product mix (the number of units of Z300, Q650, and W9) that will maximize Wolverine's operating income? All calculations must be shown.