Demand for Stuffin’ Such stuffed animal shells and stuffing/finishing kits manuf
ID: 2585262 • Letter: D
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:
The company’s plant has a capacity of 20,375 direct labour-hours per year on a single-shift basis. The company’s current employees and equipment can produce all five products.
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.)
Prepare a schedule showing the total direct labour-hours that will be required to produce the units estimated to be sold during the coming year.
What is the highest price, in terms of a rate per hour, that Stuffin’ Such should be willing to pay for additional capacity (that is, for added direct labour time)? (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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:
Explanation / Answer
Requirement A: Contribution margin Per Labour hour TEDDY BEAR POLAR BEAR HUSKY TIGER STUFFING/ FINISHING KITS Direct labour cost per unit in $ 3.50 4.00 6.00 8.00 3.00 Labour cost per hour 10.00 10.00 10.00 10.00 10.00 Direct Labour hours required per unit of Output 0.35 0.40 0.60 0.80 0.30 (Direct labour cost/Labour rate) (3.5/10) (4/10) (6/10) (8/10) (3/10) Selling Price per unit 30.00 32.00 25.00 27.00 12.00 Less: Variable Cost per unit Direct material 5.60 4.40 3.60 4.20 2.60 Direct Labour 3.50 4.00 6.00 8.00 3.00 Variable manufacturing overheads 0.70 0.80 1.20 1.60 0.60 (@$2 per labour hour) (0.35 hour*2) (0.4 hour*2) (0.6 hour*2) (0.8 hour*2) (0.3 hour*2) Contribution per unit 20.20 22.80 14.20 13.20 5.80 Divide: Labour hour per unit 0.35 0.40 0.60 0.80 0.30 Contribution per labour hour 57.71 57.00 23.67 16.50 19.33 Ranking based on Contribution per hour I II III V IV Requirement B: SCHEDULE SHOWING TOTAL DIRECT LABOUR HOURS REQUIRED FOR EXPECTED SALES TEDDY BEAR POLAR BEAR HUSKY TIGER STUFFING/ FINISHING KITS TOTAL Direct labour cost per unit in $ 3.50 4.00 6.00 8.00 3.00 Labour cost per hour 10.00 10.00 10.00 10.00 10.00 Direct Labour hours required per unit of Output 0.35 0.40 0.60 0.80 0.30 (Direct labour cost/Labour rate) (3.5/10) (4/10) (6/10) (8/10) (3/10) Expected Demand in units 15,500 4,500 5,500 2,500 29,500 57,500 Total Labour hours required 5425 1800 3300 2000 8850 21,375 (Expected Demand units*Labour hours per unit) (15500*.35) (4500*.40) (5500*.60) (2500*.80) (29500*.30) Therefore, Total labour hours required for Expected Demand is 21,375 labour hours Requirement C: Price to be paid for additional capacity of labour hours Total labour hours required 21,375 Labour hours Less: Labour hours available 20,375 labour hours SHORTAGE 1,000 Labour hours As per Ranking given in Requirement A, TIGER product is ranked last Therefore, the shortage hours has been deducted from Production of Tiger product Now, if additional capacity is available, the same could only be used for TIGER product This would give contribution per labour hour @ 16.50 per hour Therefore, Highest price, which the company is willing to pay is $ 16.50 per hour (which it is earning from additional hour)
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