Question

3. Based on response to Requirement 1 & 2, how much of 103,250 direct labor hours of capacity will be allocated to Walton Toy Company's various products? Product Hours Debbie Trish Sarah Mike Sewing kit 4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource? Total contribution margin 5. What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round interme calculations. Round your answers to 2 decimal places.) Highest price per hour

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	2.8	8	0.35
Trish	1.2	8	0.15
Sarah	5.2	8	0.65
Mike	3.6	8	0.45
Sewing Kit	0.8	8	0.1
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	0.35	5	1.75
Trish	0.15	5	0.75
Sarah	0.65	5	3.25
Mike	0.45	5	2.25
Sewing Kit	0.1	5	0.5
	Debbie	Trish	Sarah	Mike	Sewing kit
Selling price per unit	19.5	6	33	13	9
Direct Material	5.3	2.1	7.94	3	4.2
Direct Labor	2.8	1.2	5.2	3.6	0.8
Variable overhead	1.75	0.75	3.25	2.25	0.5
Contribution Margin per Unit (A)	9.65	1.95	16.61	4.15	3.5
Direct Labor hours per unit (B)	0.35	0.15	0.65	0.45	0.1
Contribution margin per direct labor hour(A/B)	27.57142857	13	25.55384615	9.222222	35
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	60,000	0.35	21,000	579,000
Trish	52,000	0.15	7,800	101,400
Sarah	45,000	0.65	29,250	747,450
Mike	26,000	0.45	11,700	107,900
Sewing Kit	335,000	0.1	33,500	1,172,500
		Total	103,250	2,708,250
5.highest direct labor rate per hour = Cost + Contribution margin per hour
=$8+9.22
17.22222222
Since the additional hours will be used to produce Mike