Question

п JCUIMIect.itm m Project Saved Help Save & Exit Se Check my w 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: Demand Selling Next year Price Direct Direct Product Debbie Trish (units) per Unit Materials $16.70 $ 7.50 $26.60 Labor se,000 42,000 $4.30 $1.10 $6.44 $2.00 $3.20 $ 6.40 $ 4.00 Sarah Mike 35,000 40,000 325,000 $11.20 Sewing kit $14.00 $ 9.60 $ 8.00 $ 3.20 The following additional information is available: a. The company's plant has a capacity of 130,000 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 $16 per hour is expected to remain unchanged during the coming year C. Fixed manufacturing costs total $520,000 per year. Variable overhead costs are $2 per direct labor-hour d. All of the company's norimanufacturing 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? Prev 1 of 2 Next > to search
need all 3 requirements

Answer 1

Solution

Walton Toy Company

1. determination of the number of direct labor hours needed to manufacture one unit of each of the five products:

Product	Direct labor	Direct labor cost per hour	direct labor hours per unit
Debbie	$6.40	$16	0.40
Trish	$4.00	$16	0.25
Sarah	$11.20	$16	0.70
Mike	$8.00	$16	0.50
Sewing Kit	$3.20	$16	0.20

Note:

Direct labor hour per unit is calculated as follows,

Total direct labor hour per unit/direct labor hour

Direct labor hour rate = $16 per hour

For instance, direct labor hour for the product Debbie = $6.40/$16 =0.40 hours

2   determination of variable overhead cost for one unit of each of the five products:

Product	direct labor hours per unit	Variable overhead per hour	Variable overhead per unit
Debbie	0.4	$2	$0.80
Trish	0.25	$2	$0.50
Sarah	0.7	$2	$1.40
Mike	0.5	$2	$1.00
Sewing Kit	0.2	$2	$0.40

Note: variable overhead per unit = direct labor hours per unit x variable overhead rate per hour

For instance, Debbie variable overhead per unit = 0.4 hours x $2 = $0.80

1. Contribution margin per hour for each of the company’s five products:

1. Determination of contribution margin per unit and per direct labor hour for all the products:

Product	selling price per unit	Direct material cost per unit	Direct labor cost per unit	Variable overhead per unit	Total variable cost per unit	Contribution margin per unit	direct labor hours per unit	contribution per direct labor hour
Debbie	$16.70	$4.30	$6.40	$0.80	$11.50	$5.20	0.40 hours	$13
Trish	$7.50	$1.10	$4.00	$0.50	$5.60	$1.90	0.25 hours	$7.60
Sarah	$26.60	$6.44	$11.20	$1.40	$19.04	$7.56	0.70 hours	$10.80
Mike	$14.00	$2.00	$8.00	$1.00	$11.00	$3.00	0.50 hours	$6.00
Sewing Kit	$9.60	$3.20	$3.20	$0.40	$6.80	$2.80	0.20 hours	$14.00

Contribution margin per unit = selling price – total variable cost per unit

Total variable cost per unit = direct materials per unit + direct labor per unit + variable overhead per unit

For instance, Contribution margin per unit for Trish is computed as follows,

Total variable cost per unit = 1.10 + 4 + 0.50 = $5.60

Contribution margin per unit = $7.50 - $5.60 = $1.90

Now, contribution margin per hour = contribution margin per unit/hours per unit

For trish,

Contribution margin per hour = $1.90/0.25 hours = $7.60 per hour