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: 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

Answer 1

Calculation of direct labor hours per unit = Direct labor cost per unit/Rate per hour
	Direct labor Cost	Rate per hour	Direct Labor hours per unit
Debbie	3.5	7	0.5
Trish	0.84	7	0.12
Sarah	5.6	7	0.8
Mike	4.2	7	0.6
Sewing Kit	0.49	7	0.07
Calculation of variable overhead cost per unit
Variable overhead cost per unit = Labor hours per unit*Variable overhead cost per unit
	Direct Labor hours per unit	Rate per hour	Variable overhead cost per unit
Debbie	0.5	3	1.5
Trish	0.12	3	0.36
Sarah	0.8	3	2.4
Mike	0.6	3	1.8
Sewing Kit	0.07	3	0.21
	Debbie	Trish	Sarah	Mike	Sewing kit
Selling price per unit	37	5	35.5	15	9.6
Direct Material	4.3	1.2	8.84	3.6	4.8
Direct Labor	3.5	0.84	5.6	4.2	0.49
Variable overhead	1.5	0.36	2.4	1.8	0.21
Contribution Margin per Unit (A)	27.7	2.6	18.66	5.4	4.1
Direct Labor hours per unit (B)	0.5	0.12	0.8	0.6	0.07
Contribution margin per direct labor hour(A/B)	55.4	21.6666667	23.325	9	58.57
4.Labor hours will be allocated on the basis of maximum contribution margin per hour
Product	Units	Labor hours per unit	Total Labor hours	Contribution Margin
Debbie	66,000	0.5	33,000	1,828,200
Trish	58,000	0.12	6,960	150,800
Sarah	51,000	0.8	40,800	951,660
Mike	18,500	0.6	11,100	99,900
Sewing Kit	341,000	0.07	23,870	1,398,100
		Total	115,730	4,428,660
5.highest direct labor rate per hour = Cost + Contribution margin per hour
=$7+9
16
Since the additional hours will be used to produce Mike