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

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:

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 manufacturing 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. 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 94,500 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 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

all correct 1) Debbie Trish Sarah Mike Sewing kit direct labor cost per unit 3.5 1 6.5 4.5 0.5 direct labor rate per hour 10 10 10 10 10 direct labor hrs per unit 0.35 0.1 0.65 0.45 0.05 2) variable overhead cost incurred Debbie Trish Sarah Mike Sewing kit variable overhead cost per hour 3 3 3 3 3 direct labor hours per unit 0.35 0.1 0.65 0.45 0.05 variabe overhead cost incurred 1.05 0.3 1.95 1.35 0.15 3) total contribution margin Selling price 38 4.6 31 14 10 less:Variable costs direct materials 4.7 1.6 9.44 4 5.2 direct labor 3.5 1 6.5 4.5 0.5 variable overhead 1.05 0.3 1.95 1.35 0.15 total variable costs 9.25 2.9 17.89 9.85 5.85 contribution margin per unit 28.75 1.7 13.11 4.15 4.15 direct labor hours per unit 0.35 0.1 0.65 0.45 0.05 contribution margin per hours 82.14 17.00 20.17 9.22 83.00 answer Raning 2 4 3 5 1 demand CM total product per uni contribution Debbie 70,000 28.75 2,012,500 trish 62,000 1.7 105400 Sarah 55,000 13.11 721050 mike 48,000 4.15 199200 sewing kit 345,000 4.15 1431750 total contribution margin 4,469,900 DLH per estimated total product unit sale units hours Debbie 0.35 70,000 24500 trish 0.1 62,000 6200 Sarah 0.65 55,000 35750 mike 0.45 24,000 10,800 sewing kit 0.05 345,000 17250 total hours required 94,500 Allocated units contribut total total produced per unit contribution product hours Debbie 24,500 70,000 28.75 2012500 trish 6,200 62,000 1.7 105400 Sarah 35,750 55,000 13.11 721050 mike 10,800 24,000 4.15 99600 sewing kit 17,250 345,000 4.15 1431750 total hours required 94,500 4370300 answer highest price will be   $10direct labor rate +$4.15 contribution margin per hours 14.15 answer

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