The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit.
ID: 2517439 • 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 Demand Selling Next year Price Direct Direct (units) per Unit Materials Labor 63,000 $21.00 $5.60 $4.20 5,000 7.50 $2.40 $1.44 48,000 $36.50 $8.39 $7.80 48,000 $16.00 $3.30 $5.40 Product Debbie Trish Sarah Mike Sewing kit 9.30 $4.50 $0.84 The following additional information is available a. The company's plant has a capacity of 94,310 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 $12 per hour is expected to remain unchanged during the coming year. C. Fixed costs total $650,000 per year. Variable overhead costs are $4 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 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.) ontribution Product Margin per DLH Debbie Trish Sarah Mike Sewing kitExplanation / Answer
1) Calculation of Contribution Margin per direct labor hour (Amounts in $)
2) Calculation of total direct labor hours required
Total direct labor hours required = 22,050+6,600+31,200+21,600+23,660 = 105,110 hours
3) Statement showing ranking of products
The product with highest contribution margin should be produced first and the product with lowest contribution margin should be produced in the last if there is an excess labor hours.
Total hours required = 105,110 hrs
Total hours available = 94,310 hrs
Hours in shortage = 105,110 - 94,310 = 10,800 hrs
Therfore all the products from ranking 1 to 4 can be produced to its possible demand, but the product with ranking 5 (i.e. Mike) can be used only available hours of 10,800 (21,600 required - 10,800 shortage).
Allocation of Available direct labor hours
4) Calculation of Highest Total Contribution Margin (Amounts in $)
Therefore the highest total contribution margin is $3,018,282.
Particulars Debbie Trish Sarah Mike Sewing Kit a) Direct Labor cost per unit 4.20 1.44 7.80 5.40 0.84 b) Direct labor rate per hour 12 12 12 12 12 c) Direct Labor hour required per unit (a/b) 0.35 0.12 0.65 0.45 0.07 d) Selling Price per unit 21.00 7.50 36.50 16.00 9.30 e) Direct Materials per unit 5.60 2.40 8.39 3.30 4.50 f) Variable overhead per unit (c*$4 per DLH) 1.40 0.48 2.60 1.80 0.28 g) Contribution Margin per unit (d-e-a-f) 9.80 3.18 17.71 5.50 3.68 h) Contribution Margin per DLH (g/c) 28.00 26.50 27.25 12.22 52.57Related Questions
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