The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit.
ID: 2471435 • Letter: T
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 company’s plant has a capacity of 114,750 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.
Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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.)
Based on response to Requirement 1 & 2, how much of 114,750 direct labor hours of capacity will be allocated to Walton Toy Company’s various products?
What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?
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 DemandNext year
(units) Selling
Price
per Unit Direct
Materials Direct
Labor Debbie 52,000 $17.00 $4.50 $2.80 Trish 44,000 $ 6.50 $1.30 $1.40 Sarah 37,000 $26.00 $6.74 $4.90 Mike 40,800 $12.00 $2.20 $3.50 Sewing kit 327,000 $ 8.20 $3.40 $1.05
Explanation / Answer
1
Calculation of contribution margin per direct labor-hour:
Product
Selling
Direct
Direct
Contribution
Direct Labor
Direct Labor
Contribution
Price
Materials
Labor
Margin
Cost
Hours
Margin
per Unit
Per Unit
Per hour
Per unit
Per Direct Labor Hour
A
B
C
D =A-B-C
E
F =C / E
D/F
Debbie
$ 17.00
$ 4.50
$ 2.80
$ 9.70
$ 7.00
0.40
$ 24.25
Trish
$ 6.50
$ 1.30
$ 1.40
$ 3.80
$ 7.00
0.20
$ 19.00
Sarah
$ 26.00
$ 6.74
$ 4.90
$ 14.36
$ 7.00
0.70
$ 20.51
Mike
$ 12.00
$ 2.20
$ 3.50
$ 6.30
$ 7.00
0.50
$ 12.60
Sewing kit
$ 8.20
$ 3.40
$ 1.05
$ 3.75
$ 7.00
0.15
$ 25.00
2
Calculation of total direct labor-hours that will be required to produce the units estimated to be sold during the coming year:
Product
Demand
Direct Labor
Direct Labor
Next year
Hours
Hours
(units)
Per unit
required
A
B
A*B
Debbie
52000
0.40
20800
Trish
44000
0.20
8800
Sarah
37000
0.70
25900
Mike
40800
0.50
20400
Sewing kit
327000
0.15
49050
Total Direct Labor Hours Required
124950
3
Allocation of Direct Labor Hours:
Product
Contribution
Rank
Direct Labor
Direct Labor
Margin
For
required
Hours
Per Direct Labor Hour
Production
Allocated
A*B
Debbie
$ 24.25
2
20800
20800
Trish
$ 19.00
4
8800
8800
Sarah
$ 20.51
3
25900
25900
Mike
$ 12.60
5
20400
10200
(114750-20800-8800-25900-49050)
Sewing kit
$ 25.00
1
49050
49050
Total Hours Available
114750
4
Calculation of highest total contribution margin that the company can earn if it makes optimal use of its constrained resource:
Product
Direct Labor
Contribution
Contribution
Hours
Margin
Margin
Allocated
Per Direct
Labor Hour
A
B
A*B
Debbie
20800
$ 24.25
$ 504,400.00
Trish
8800
$ 19.00
$ 167,200.00
Sarah
25900
$ 20.51
$ 531,320.00
Mike
10200
$ 12.60
$ 128,520.00
Sewing kit
49050
$ 25.00
$1,226,250.00
Highest total contribution margin
$2,557,690.00
1
Calculation of contribution margin per direct labor-hour:
Product
Selling
Direct
Direct
Contribution
Direct Labor
Direct Labor
Contribution
Price
Materials
Labor
Margin
Cost
Hours
Margin
per Unit
Per Unit
Per hour
Per unit
Per Direct Labor Hour
A
B
C
D =A-B-C
E
F =C / E
D/F
Debbie
$ 17.00
$ 4.50
$ 2.80
$ 9.70
$ 7.00
0.40
$ 24.25
Trish
$ 6.50
$ 1.30
$ 1.40
$ 3.80
$ 7.00
0.20
$ 19.00
Sarah
$ 26.00
$ 6.74
$ 4.90
$ 14.36
$ 7.00
0.70
$ 20.51
Mike
$ 12.00
$ 2.20
$ 3.50
$ 6.30
$ 7.00
0.50
$ 12.60
Sewing kit
$ 8.20
$ 3.40
$ 1.05
$ 3.75
$ 7.00
0.15
$ 25.00
2
Calculation of total direct labor-hours that will be required to produce the units estimated to be sold during the coming year:
Product
Demand
Direct Labor
Direct Labor
Next year
Hours
Hours
(units)
Per unit
required
A
B
A*B
Debbie
52000
0.40
20800
Trish
44000
0.20
8800
Sarah
37000
0.70
25900
Mike
40800
0.50
20400
Sewing kit
327000
0.15
49050
Total Direct Labor Hours Required
124950
3
Allocation of Direct Labor Hours:
Product
Contribution
Rank
Direct Labor
Direct Labor
Margin
For
required
Hours
Per Direct Labor Hour
Production
Allocated
A*B
Debbie
$ 24.25
2
20800
20800
Trish
$ 19.00
4
8800
8800
Sarah
$ 20.51
3
25900
25900
Mike
$ 12.60
5
20400
10200
(114750-20800-8800-25900-49050)
Sewing kit
$ 25.00
1
49050
49050
Total Hours Available
114750
4
Calculation of highest total contribution margin that the company can earn if it makes optimal use of its constrained resource:
Product
Direct Labor
Contribution
Contribution
Hours
Margin
Margin
Allocated
Per Direct
Labor Hour
A
B
A*B
Debbie
20800
$ 24.25
$ 504,400.00
Trish
8800
$ 19.00
$ 167,200.00
Sarah
25900
$ 20.51
$ 531,320.00
Mike
10200
$ 12.60
$ 128,520.00
Sewing kit
49050
$ 25.00
$1,226,250.00
Highest total contribution margin
$2,557,690.00
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