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 Demand Selling Next year Price (units) per Unit 58,000 $25.00 50,000 $7.50 43,000 $41.50 48,000 5 11.00 333,000 $ 8.30 Direct Materials $5.10 $1.90 $7.64 52. 0 $4.00 Direct Labor $ 2.10 $ 0.78 $ 3.90 2 .20 $ 0.48 Sewing kit The following additional information is available: a. The company's plant has a capacity of 92,190 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 $6 per hour is expected to remain unchanged during the coming year. c. Fixed manufacturing costs total $600.000 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

Answer 1

		Waltson Toy Company
		Debbie	Trish	Sarah	Mike	Sewing Kit
	Direct labor cost per unit=(A)	$                 2.10	$             0.78	$                        3.90	$                   2.70	$                    0.48
	Cost per direct labor hours=(B)	$                 6.00	$             6.00	$                        6.00	$                   6.00	$                    6.00
1)	Direct labor hours per unit=(C )=(A)/(B)	0.35	0.13	0.65	0.45	0.08
	Selling Price=(D)	$               26.00	$             7.50	$                      41.50	$                 11.00	$                    8.80
	Variable Cost:
	Direct Material	$                 5.10	$             1.90	$                        7.64	$                   2.80	$                    4.00
	Direct Labor	$                 2.10	$             0.78	$                        3.90	$                   2.70	$                    0.48
	Variable Overhead=(C )*$3	$                 1.05	$             0.39	$                        1.95	$                   1.35	$                    0.24
2)	Total Variable cost=(E )	$                 8.25	$             3.07	$                      13.49	$                   6.85	$                    4.72
	Contribution Margin=(F )=(D)-(E )	$               17.75	$             4.43	$                      28.01	$                   4.15	$                    4.08
3)	Contribution Margin per DLH=(F)/(C )	$               50.71	$           34.08	$                      43.09	$                   9.22	$                  51.00
	Ranking	2	4	3	5	1
	Total Direct Labor Hours required to produce Company's five products
4)		(A)	(B)	(A)*(B)
		Estimated sales(Unit)	DLH per unit	Total Hours
	Debbie	58000	0.35	20300
	Trish	50000	0.13	6500
	Sarah	43000	0.65	27950
	Mike	48000	0.45	21600
	Sewing Kit	330000	0.08	26400
	Total Direct Labor Hours			102750
	Constraint Resource (Direct Labor Hours)	102750
	Amount of constraint resource available=(A)	92190
	Less: Constraint resource required for production of sewing kit=(3300000*.08)=(B)	26400
	Remaining constraint resource=(C )=(A)-(B)	65790
	Less: Constraint resource required for production of Debbie=(58000*.35)=(D)	20300
	Remaining constraint resource=(E )=(C)-(D)	45490
	Less: Constraint resource required for production of Sarah=(F)=(43000*.65)	27950
	Remaining constraint resource=(G)=(E )-(F )	17540
	Less: Constraint resource required for production of Trish=(H)=(50000*.13)	6500
	Remaining constraint resource	11040
	Remaining constraint resource used for production of mike(11040/.45)	24533.33333
		Debbie	Trish	Sarah	Mike	Sewing Kit	Total
	Production=(A)	20300	6500	27950	24533.33	26400
	Contribution Margin per unit=(B)	$               17.75	$             4.43	$                      28.01	$                   4.15	$                    4.08
	Total contribution margin=(A)*(B)	$   3,60,325.00	$   28,795.00	$          7,82,879.50	$     1,01,813.33	$      1,07,712.00	$ 13,81,524.83
5)	Because additional capacity would be used to produce the mike doll, the company should be willing to pay upto $10.15($6 plus $4.15 contribution per direct labor hours) for added labor time.