The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit.

Question

The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls is increasing, and management requests assistance from you in determining an economical sales and production mix for the coming year. The company has provided the following data:

  

The following additional information is available:  

The company’s plant has a capacity of 94,500 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.

The direct labor rate of $10 per hour is expected to remain unchanged during the coming year.

Fixed costs total $585,000 per year. Variable overhead costs are $3 per direct labor-hour.

All of the company's nonmanufacturing costs are fixed.

The company’s finished goods inventory is negligible and can be ignored.

Required:

1. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.

2. Calculate the the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year. (Do not round intermediate calculations.)

3. Based on response to Requirement 1 & 2, how much of 94,500 direct labor hours of capacity will be allocated to Walton Toy Company’s various products?

4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?

5. What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Product Demand
Next year
(units) Selling
Price
per Unit Direct
Materials Direct
Labor Debbie 70,000 $38.00 $4.70 $3.50 Trish 62,000 $ 4.60 $1.60 $1.00 Sarah 55,000 $31.00 $9.44 $6.50 Mike 48,000 $14.00 $4.00 $4.50 Sewing kit 345,000 $ 10.00 $5.20 $0.50

Explanation / Answer

Product Demand Selling Direct Direct Variable overhead V Contribution margin per unit C= S-M-L-V Hours per unitrequited H=L/D Contribution margin perhour C/H Next year Price S Materials M Labor L (units) per Unit Debbie 70,000 $38.00 $4.70 $3.50 1.05 $28.75 0.35 $82.14 Trish 62,000 $4.60 $1.60 $1.00 0.3 $1.70 0.1 $17.00 Sarah 55,000 $31.00 $9.44 $6.50 1.95 $13.11 0.65 $20.17 Mike 48,000 $14.00 $4.00 $4.50 1.35 $4.15 0.45 $9.22 Sewing kit 345,000 $10.00 $5.20 $0.50 0.15 $4.15 0.05 $83.00 Direct Direct labor rate Hours per unitrequited H=L/D Variable overhead 3*H Labor L D working Debbie $3.50 $10 0.35 1.05 Trish $1.00 $10 0.1 0.3 Sarah $6.50 $10 0.65 1.95 Mike $4.50 $10 0.45 1.35 Sewing kit $0.50 $10 0.05 0.15 ans 1 Contribution margin perhour C/H Debbie $82.14 Trish $17.00 Sarah $20.17 Mike $9.22 Sewing kit $83.00 ans 2 Product Demand Hours required Total hours req Next year (units) Debbie 70,000 0.35 24500 Trish 62,000 0.1 6200 Sarah 55,000 0.65 35750 Mike 48,000 0.45 21600 Sewing kit 345,000 0.05 17250 Total direct labor hours required 105300 ans 3 According to maximum contribution per hour by the product , the hours will be allocated Product Total hours req Contribution margin perhour C/H Ranking Hours allocated Debbie 24500 $82.14 2 24500 Trish 6200 $17.00 4 6200 Sarah 35750 $20.17 3 35750 Mike 21600 $9.22 5 10800 Sewing kit 17250 $83.00 1 17250 105300 Mike (94500-24500-6200-35750-17250) 10800 ans 4 Maximum contribution Product Hours allocated Contribution margin perhour C/H Contribution Debbie 24500 $82.14 $2,012,500 Trish 6200 $17.00 $105,400 Sarah 35750 $20.17 $721,050 Mike 10800 $9.22 $99,600 Sewing kit 17250 $83.00 $1,431,750 Maximum contribution $4,370,300 If any doubt please comment

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