Machinable wax is used for modelmaking and prototyping, since it is very easy to machine and can be formulated so that it can take fine detail. A typical supplier is Freeman (http://www.freemansupply.com/MachinableWax.htm). It's great stuff, but is rather expensive - fine for small items like jewellery, but not for big sculptures etc. However, it turns out that you can brew your own. One day, I came across a couple of of threads on MadModder - http://madmodder.net/index.php?topic=2729.0 and http://madmodder.net/index.php?topic=2726.25 - where user AdeV describes his experience with machinable wax. It looked very easy, so I just had to try it.
The basic idea is to make standard paraffin wax stiffer by dissolving low-density polyethylene in it, typically about 25% by weight of LDPE (i.e. 1 part LDPE to 3 parts wax). The source used for the LDPE is typically freezer bags. LDPE granules would be great, but are hard to get hold of. If using freezer bags, make sure they are LDPE or LLDPE (some are HDPE and won't work as well).
To make the stuff below, I melted some wax (two candles) in a soup can over a low bunsen burner, stirring constantly whilst measuring the temperature. I kept it at 130°C and added 20% by weight of freezer bags and a little bit of red polyester dye (coloured crayons would be good for this). The bags initially all ball up, but after about 20 minutes of stirring, they dispersed and the mixture was sort of sticky. I then poured it into a little mould and let it cool.
The stuff machines beautifully, breaking up into nice clean chips. It's full of bubbles, but things would improve if it was held molten for a while to let the bubbles rise (I couldn't do that since I was using a bunsen to heat it with - if I stopped stirring, the stuff at the bottom overheated). It could also be vacuumed before pouring.
Needless to say, be very careful about melting wax. Do not do it over a naked flame like I did - get an electric hotplate, cooking hob, or deep fat fryer to do the job, it's much safer.