The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for

ID: 2512248 • Letter: T

Question

The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company's products 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 Demand Next Selling year Direct Labor $ 3.20 $ 1.04 $ 5.60 $ 4.00 $ 0.64 Price Direct Product Debbie Trish Sarah Mike Sewing kit (units) per Unit Materials 64,000 $22.00 56,000 $8.00 49,000 $38.50 45,600 $13.00 339,000 $ 9.40 $4.10 $2.50 $8.54 $3.40 $4.60 The following additional information is available a. The company's plant has a capacity of 105,700 direct labor-hours per year on a single-shift basis. The company's present employees and equipment can produce all five products b. The direct labor rate of $8 per hour is expected to remain unchanged during the coming year. C. Fixed manufacturing costs total $525,000 per year. Variable overhead costs are $5 per direct labor-hour d. All of the company's nonmanufacturing costs are fixed e. The company's finished goods inventory is negligible and can be ignored

Explanation / Answer

Solution:

Part 1 --- Direct Labor Hours per unit

Debbie

Trish

Sarah

Mike

Sewing Kit

Direct Labor Cost per unit (A)

$3.20

$1.04

$5.60

$4.00

$0.64

Direct Labor Rate Per Unit (B)

$8.00

Direct Labor Hours Per Unit (A/B)

0.40

0.13

0.70

0.50

0.08

Part 2 – Variable Overhead Per Unit

Debbie

Trish

Sarah

Mike

Sewing Kit

Direct Labor Hours Per Unit

(As calculated in Part 1) (A)

0.40

0.13

0.70

0.50

0.08

Variable Overhead Cost per direct labor hour (B)

$5.00

Variable Overhead Per Unit (A*B)

$2.00

$0.65

$3.50

$2.50

$0.40

Part 3 – Contribution Margin Per DLH

Debbie

Trish

Sarah

Mike

Sewing Kit

Unit Selling Price (A)

$22.00

$8.00

$38.50

$13.00

$9.40

Variable Costs:

Direct materials per unit

$4.10

$2.50

$8.54

$3.40

$4.60

Direct labor per unit

$3.20

$1.04

$5.60

$4.00

$0.64

Variable Overhead Per Unit (Refer part 2)

$2.00

$0.65

$3.50

$2.50

$0.40

Total Variable Cost per unit (B)

$9.30

$4.19

$17.64

$9.90

$5.64

Contribution Margin Per Unit (A - B)

$12.70

$3.81

$20.86

$3.10

$3.76

Direct Labor Hours Needed Per Unit (Refer Part 1)

0.40

0.13

0.70

0.50

0.08

Contribution Margin Per Direct Labor Hour (CM per unit / DLH needed per unit)

$31.75

$29.31

$29.80

$6.20

$47.00

Part 4 – Highest Total Contribution Margin = $1,241,006

This part is related to the optimal product mix by using the constraint resources. The product having highest contribution margin per constraint resources should be produced first and so on the basis of Contribution Margin per constraints

Here the constraint resources is 105,700 Direct Labor Hours.

So we need to prepare an optimal product mix by using these constraint resource and the maximum Demand for next year because it is also a limiting factor that you cannot sell the product beyond that demand.

Debbie

Trish

Sarah

Mike

Sewing Kit

Total Accumulated Machine Hours Used

Ranking for Production on the basis of highest contribution margin per direct labor hour

Maximum Demand for Next Year (Units)

64000

56000

49000

45600

339000

Direct labor hours needed per unit (Refer part 1)

0.40

0.13

0.70

0.50

0.08

Optimal Product Mix (The Maximum Number of Units to be produced by using Machine Hours and Maximum Demand)

Total Accumulated Machine Hours Used

Rank 1 -- Sewing Kit

27120

Rank 2 -- Debbie

25600

52720

Rank 3 -- Sarah

34300

87020

Rank 4 -- Trish

7280

94300

Rank 5 -- Mike (After making all the above ranking units we have only 11400 DLHs left)

22800

(11,400 DLH / 0.50 Hrs needed per unit)

11400

Total Maximum Available Direct Labor Hours

105700

Optimal Product Mix Units

Debbie

Trish

Sarah

Mike

Sewing Kit

TOTAL

The maximum optimal product mix units can be produced (A)

25600

7280

34300

22800

$27,120

Contribution Margin Per Unit (Refer working for part 3) (B)

$12.70

$3.81

$20.86

$3.10

$3.76

Highest Total Contribution Margin (A*B)

$325,120.00

$27,736.80

$715,498.00

$70,680.00

$101,971.20

$1,241,006.00

Part 5 --- The highest direct labor rate per hour $6.20 per hour

Since company had made all the product units upto rank 4 and part of Rank 5 (Mike).

For further capacity company can pay maximum is $6.20 per unit it is the contribution margin per direct labor hour from Mike Product.

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

Debbie

Trish

Sarah

Mike

Sewing Kit

Direct Labor Cost per unit (A)

$3.20

$1.04

$5.60

$4.00

$0.64

Direct Labor Rate Per Unit (B)

$8.00

Direct Labor Hours Per Unit (A/B)

0.40

0.13

0.70

0.50

0.08

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The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for

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