Demand for Stuffin’ Such stuffed animal shells and stuffing/finishing kits manuf

Question

Demand for Stuffin’ Such stuffed animal shells and stuffing/finishing kits manufactured by RoseMarie Limited is increasing, and management requests assistance from you in determining the best sales and production mix for the coming year. The company has provided the following data:

Demand Selling Direct (units) per Unit Materials Labour $1.00 $1.50 $3.50 $5.50 $.50 Next Year Price Direct Product Teddy bear Polar bear Husky Tiger 13,000 8,000 9,000 6,000 $30 $32 $25 $27 $12 $5.10 $3.90 $3.10 $3.70 $2.10 Stuffing/finishing kits 27,000 The following additional information is available: a. The company's plant has a capacity of 9,750 direct labour-hours per year on a single-shift basis. The company's current employees and equipment can produce all five products b. The direct labour rate of $10.00 per hour is expected to remain unchanged during the coming year. c. Fixed costs total $160,000 per year. Variable overhead costs are $3.00 per direct labour-hour. d. All of the company's non-manufacturing costs are fixed. e. The company's finished goods inventory is negligible and can be ignored. Required: 1. Determine the contribution margin per direct labour-hour expended on each product (the profitability index). (Do not round intermediate calculations. Round your answers to 2 decimal places.) Contribution Margin per DLH Product Teddy Polar Husky Tiger Stuffing/finishing Kit

Explanation / Answer

Solution:

Primary Working:

Calculation of Direct labor hour needed per unit

Teddy bear

Polar bear

Husky

Tiger

Stuffing/finishing kit

Direct labor Cost per unit (A)

$1.00

$1.50

$3.50

$5.50

$0.50

Direct labor rate per hour (B)

$10.00

$10.00

$10.00

$10.00

$10.00

Per Unit Direct Labor Hour needed (A/B)

0.10

0.15

0.35

0.55

0.05

Part 1 --- Contribution Margin per direct labor hour

Product

Unit Selling Price

Direct materials per unit

direct labor cost per unit

Total Variable Cost Per Unit

Contribution MarginPer Unit

Direct Labor Hour Needed Per Unit

Contribution Margin per DLH

(A)

(X)

(Y)

(B = X+Y)

(C = A - B)

(L)

(C/L)

Teddy bear

$30.00

$5.10

$1.00

$6.10

$23.90

0.1

$239.00

Polar bear

$32.00

$3.90

$1.50

$5.40

$26.60

0.15

$177.33

Husky

$25.00

$3.10

$3.50

$6.60

$18.40

0.35

$52.57

Tiger

$27.00

$3.70

$5.50

$9.20

$17.80

0.55

$32.36

Stuffing/finishing kit

$12.00

$2.10

$0.50

$2.60

$9.40

0.05

$188.00

Part 2 – Schedule showing the total direct labor hours required to produce the units estimated

Product

Demand Next year

Direct Labor Hour needed per unit

Total Direct Labor Hours

(A)

(B)

(A*B)

Teddy bear

13000

0.10

1300

Polar bear

8000

0.15

1200

Husky

9000

0.35

3150

Tiger

6000

0.55

3300

Stuffing/finishing kit

27000

0.05

1350

Total DLHs required

10300

Part 3 --- Not given

Part 4 --- the highest contribution margin per direct labor hour is $239 per direct labor hour.

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

Teddy bear

Polar bear

Husky

Tiger

Stuffing/finishing kit

Direct labor Cost per unit (A)

$1.00

$1.50

$3.50

$5.50

$0.50

Direct labor rate per hour (B)

$10.00

$10.00

$10.00

$10.00

$10.00

Per Unit Direct Labor Hour needed (A/B)

0.10

0.15

0.35

0.55

0.05

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