The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit.

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:

  

The following additional information is available:  

The company’s plant has a capacity of 110,050 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 costs total $570,000 per year. Variable overhead costs are $4 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. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

  

2. Calculate the the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year. (Do not round intermediate calculations.)

  

3. Based on response to Requirement 1 & 2, how much of 110,050 direct labor hours of capacity will be allocated to Walton Toy Company’s various products?

  

4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?

5. What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

   

Product Demand
Next year
(units) Selling
Price
per Unit Direct
Materials Direct
Labor Debbie 55,000 $27.00 $4.80 $5.00 Trish 47,000 $ 6.00 $1.60 $1.50 Sarah 40,000 $40.00 $7.19 $8.00 Mike 35,000 $15.00 $2.50 $6.00 Sewing kit 330,000 $ 8.50 $3.70 $1.00

Explanation / Answer

Debbie Trish Sarah Mike Sewing kit a. direct labor cost per unit 5 1.5 8 6 1 direct labor hours per unit $10   labor rate 0.5 0.15 0.8 0.6 0.1 Hrs Hrs Hrs Hrs Hrs Selling price 27 6 40 15 8.5 less:Variable costs direct materials 4.8 1.6 7.19 2.5 3.7 direct labor 5 1.5 8 6 1 variable overhead 2 0.6 3.2 2.4 0.4 total variable costs 11.8 3.7 18.39 10.9 5.1 contribution margin per unit 15.2 2.3 21.61 4.1 3.4 contribution margin per DLH's 30.40 15.33 27.01 6.83 34.00 answer 2) DLH per estimated total product unit sale units hours Debbie 0.5 55,000 27500 trish 0.15 47,000 7050 Sarah 0.8 40,000 32000 mike 0.6 35,000 21000 sewing kit 0.1 330,000 33000 total hours required 120550 Allocated 3) total product hours Debbie 27,500 trish 7,050 Sarah 32,000 mike (110,050-99550) 10500 sewing kit 33,000 total hours required 110050 4) hightest total contribution margin units produ contribution total product per unit contribution Debbie 55,000 15.2 836000 trish 47,000 2.3 108100 Sarah 40,000 21.61 864400 mike 17,500 4.1 71750 sewing kit 330,000 3.4 1122000 total contribution margin 3002250 units of mike produced in 10500 available hours 10500/.6 17500 5) highest price will be   $10 direct labor rate +$6.83 contribution margin per hours 16.83

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