/Users/bridgetstemm/Desktop/Screen Shot 2018-04-14 at 5.41.22 PM.png The Walton
ID: 2521075 • Letter: #
Question
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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:
The following additional information is available:
The company’s plant has a capacity of 130,000 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 $16 per hour is expected to remain unchanged during the coming year.
Fixed manufacturing costs total $520,000 per year. Variable overhead costs are $2 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. How many direct labor hours are used to manufacture one unit of each of the company’s five products?
2. How much variable overhead cost is incurred to manufacture one unit of each of the company’s five products?
3. What is the contribution margin per direct labor-hour for each of the company’s five products?
4. Assuming that direct labor-hours is the company’s constraining resource, what is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?
5. Assuming that the company has made optimal use of its 130,000 direct labor-hours, what is the highest direct labor rate per hour that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?
Product DemandNext year
(units) Selling
Price
per Unit Direct
Materials Direct
Labor Debbie 50,000 $ 16.70 $ 4.30 $ 6.40 Trish 42,000 $ 7.50 $ 1.10 $ 4.00 Sarah 35,000 $ 26.60 $ 6.44 $ 11.20 Mike 40,000 $ 14.00 $ 2.00 $ 8.00 Sewing kit 325,000 $ 9.60 $ 3.20 $ 3.20
Explanation / Answer
1) Debbie Trish Sarah Mike Sewing kit direct labor cost per unit 6.4 4 11.2 8 3.2 direct labor rate per hour 16 16 16 16 16 direct labor hrs per unit 0.4 0.25 0.7 0.5 0.2 2) variable overhead cost incurred Debbie Trish Sarah Mike Sewing kit variable overhead cost per hour 2 2 2 2 2 direct labor hours per unit 0.4 0.25 0.7 0.5 0.2 variabe overhead cost incurred 0.8 0.5 1.4 1 0.4 3) total contribution margin Selling price 16.7 7.5 26.6 14 9.6 less:Variable costs direct materials 4.3 1.1 6.44 2 3.2 direct labor 6.4 4 11.2 8 3.2 variable overhead 0.8 0.5 1.4 1 0.4 total variable costs 11.5 5.6 19.04 11 6.8 contribution margin per unit 5.2 1.9 7.56 3 2.8 direct labor hours per unit 0.4 0.25 0.7 0.5 0.2 contribution margin per hours 13.00 7.60 10.80 6.00 14.00 answer 4) DLH per estimated total product unit sale units hours Debbie 0.4 50,000 20000 trish 0.25 42,000 10500 Sarah 0.7 35,000 24500 mike 0.5 20,000 10,000 sewing kit 0.2 325,000 65000 total hours required 130,000 Allocated units contribut total total produced per unit contribution product hours Debbie 20,000 50,000 5.2 260000 trish 10,500 42,000 1.9 79800 Sarah 24,500 35,000 7.56 264600 mike 10,000 20,000 3 60000 sewing kit 65,000 325,000 2.8 910000 total hours required 130,000 1574400 answer 5) highest price will be $16direct labor rate +$6 contribution margin per hours 22 answer
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