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: Product Debbie Trish Sarah Mike Sewing kit Demand Selling Next year Price (units) per Unit 67,000 $30.00 59,000 $ 5.40 52,000 $44.00 36,000 $16.00 342,000 $ 9.70 Direct Materials $4.40 $1.30 $8.99 $3.70 $4.90 Direct Labor $ 4.40 $ 0.80 $ 6.80 $ 5.20 $ 0.40 The following additional information is available: a. The company's plant has a capacity of 115,750 direct labor-hours per year on a single-shift basis. The company's present employees and equipment can produce all five products. b. The direct labor rate of $8 per hour is expected to remain unchanged during the coming year. c. Fixed manufacturing costs total $555,000 per year. Variable overhead costs are $4 per direct labor-hour. d. All of the company's nonmanufacturing costs are fixed. e. 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 115,750 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)?

Please solve for Required 4-5 in image. Explain answers.

Answer 1

Product 4.40 Debbie Trish Sarah Mike Sewing Kit 8.99 Direct Demand Selling Price Direct Labor | Material 67000 30.000 4.40 59000 5.40 1.30 0.80 52000 44.00 8.991 6.80 36000 16.00 5.20 342000 9.70 4.90 0.40 Direct Labor Hours Available 115750 Variable Overhead cost Per Unit Direct Labour Hour Rate 8 3.70 Clacullations Product Variable Overhead Cost 2.2 Contriution Margin Direct Labor Direct Labors Required 4.401 0.55 0.80 0.1 6.80 0.85 5.20 0.65 0.4 0.05 Debbie Trish Sarah Mike Sewing Kit 0.4 Contribution Margin Per DLH 34.55 29.00 29.19 6.92 84.00 19.0 2.9 24.8 4.5 4.2 3.4 2.6 0.2 Variable Overhead Cost Per Unit = Direct Labor * DL Required * Variable OH Rate Contribution Margin = Selling Price-DM-DL - Varaible OH Contribution Margin Per DLH = Contribution Margin / DL Required

Total Direct Labor-Hours Required to Prodcued Direct Labors Product Demand " Total Hours Direct Labour Contribution Required Allocated Margin Debbie 67000 0.55 36850 36850 1273000 Trish 59000 0.1 5900 59001 171100 Sarah 52000 0.85 44200 44200 1290120 Mike 36000 0.65 234001 11700 81000 Sewing Kit 3420001 0.05 17100|| 17100 1436400 Total Contribution Margin 4251620 Answers Debbie 0.55 Direct Labour Hours Per Unit Trish Sarah 0.100.85 Trish Sarah 0.40 3.40|| Mike Sewing Kit 0.65 0.05 Mike Sewing Kit 2.60 0.20 Debbie 2.20 Variable OH Cost Per Unit Trish 29.00 Sarah 29.19 Mike Sewing Kit 6.9284.00 Debbie Contribution Margin Per DLH 34.55 Highest Contibution Margir 4251620 Highest DLH per Hour | 14.92