Question

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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: Product Debbie Trish Sarah Mike Sewing kit Demand Next year (units) 66.000 58.000 51,000 37,000 341,000 Selling Price per Unit $37.00 $ 5.00 $35.50 $15.00 $ 9.60 Direct Materials $4.30 $1.20 $8.84 $3.60 $4.80 Direct Labor $3.50 $0.84 $5.60 $4.20 $0.49 The following additional information is available: a. The company's plant has a capacity of 115,730 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 $7 per hour is expected to remain unchanged during the coming year. C. Fixed costs total $545,000 per year. Variable overhead costs are $3 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. Determine the contribution margin per direct labor-hour expended on each product. (Do not round Intermediate calculations. Round your answers to 2 decimal places.) Product Contribution Margin per DLH Debbie Trish Sarah Mike Sewing kit 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.) Product Total Hours Debbie Trish Sarah Mike Sewing Kit Total hours required

Answer 1

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T. UPLITU IUNIL B C D E F G H I J - 9.6 4.3 3.5 2 Particulars 3 Debbie Trish Sarah Mike Sewing Kit 4 Selling Price 37 5 35 15 5 Direct Materials cost per unit 1.2 8.84 3.6 4.8 6 Direct Labour Cost per unit 0.84 5.6 4.2 0.49 7 Labour Hours Required per unit (Direct Labour/7) 0.5 0.12 0.8 0.6 0.07 8 Variable Overhead cost (Labour hour required *3) 1.5 0.36 - 2.4 1.8 0.21 9 Contribution Margin(S.P.-D.M.-D.L-VOH) 27.70 2.6 18.16 - 5.4|| 4.1 10 Contribution Margin per direct labor hour (C.M./ Labour hour) | 55.4 21.66667 7 22. 9 58.57143 11 12 2 13 Particulars 14 Debbie Trish Sarah Mike Sewing Kit 15 Direct Labour Cost per unit 3.5 0.84 5.6 4.2 0.49 16 Labour Hours Required per unit 0.5 0.12 0.8 0.6 0.07 17 Demand for next year (Units) 66000 58000 51000 37000 341000 18 Total Direct Labour Hours Required 33000 6960 40800 22200 23870 126830 19 20 3 21 Particulars Debbie Trish Sarah Mike Sewing Kit Total Hours 23 Allocated Hours 33000 6960| 40800 222001 238701 126830 24 New Allocation 330001 6960 40800 111001 23870 115730 25 26 Mike's hours would be reduced to half as its contribution is the lowest 27 We have total hours as 115700 that's why we have to reduce the no. of hours 28 Mike is the least profitable in terms of contribution margin per labor hour, thus there is less allocation of labor hour to the Mike 29 22

30 4. optimal profit 31 Particulars 32 Debbie Trish Sarah Mike Sewing Kit Total profit 33 New Allocation hours 33000 696040800 1110023870 34 Contribution 55.4 21.66667 22. 7 9 58.57143 35 1828200 150800 926160 999000 1398100| 4403160 36 5 Answer 37 To produce additional units of Mike, the company will be willing to pay up to $16 per hour 38 $16 = $7 (the usual rate) + $9 (contribution margin per hour of Mike) 39 40 42