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: Selling Price per Unit $17.50 6.00 $31.50 $13.00 10.10 Demand Direct Direct Next year (units) 71,000 63,000 56,000 47,600 346,000 Materials Product Labor Debbie $4.80 $1.70 $9.59 $4.10 $3.20 $1.60 $5.60 $4.00 $1.20 Irish Sarah Mike $5.30 Sewing kit The following additional information is available: a. The company's plant has a capacity of 144,000 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 $8 per hour is expected to remain unchanged during the coming year. c. Fixed costs total $595,000 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.) Contribution Product Margin per DLH Debbie Trish Sarah Mike Sewing kit

Answer 1

(1)

Product	SP pu  (A)	VC pu (B)	Contribution pu  (C=A-B)	DL Hours  (D)	Contribution Margin per DL Hour (C/D)
Debbie	$17.50	$9.2	$8.30	0.4	$20.75
Trish	$6	$3.9	$2.1	0.2	$10.5
Sarah	$31.50	$17.29	$14.21	0.7	$20.3
Mike	$13	$9.60	$3.40	0.5	$6.80
Sewing Kit	$10.10	$6.95	$3.15	0.15	$21

DL hours per unit :-

Debbie = $3.2/$8 = 0.4 hour

Trish = $1.6/$8 = 0.2 hours

Sarah = $5.60/$8 = 0.7 hours

Mike = $4/$8 = 0.5 hours

Sewing Kit = $1.2/$8 = 0.15 hours

VC pu = DM + DL + Variable OH

Debbie = $4.8 + $3.2 + ($3 * 0.4) = $9.2

Trish = $1.7 + $1.6 + ($3 * 0.2) = $3.9

Sarah = $9.59 + $5.60 + ($3 * 0.7) = $17.29

Mike = $4.10 + $4 + ($3 * 0.5) = $9.60

Sewing Kit = $5.30 + $1.20 + ($3 * 0.15) = $6.95

(2)

Product	Demand (A)	DL hours per unit (B)	Total Hours (A X B)
Debbie	71000	0.4	28400
Trish	63000	0.2	12600
Sarah	56000	0.7	39200
Mike	47600	0.5	23800
Sewing Kit	346000	0.15	51900

(3)

Product	Contribution Margin per DL Hour	Ranking	Demand	DL hours per unit	Hours
Debbie	$20.75	2	71000	0.4	(71000*0.4) =28400
Trish	$10.5	4	63000	0.2	(63000*0.2) =12600
Sarah	$20.3	3	56000	0.7	(56000*0.7) =39200
Mike	$6.80	5	47600	0.5	11900
Sewing Kit	$21	1	346000	0.15	(346000*0.15) =51900

(4) Total Contribution Margin :-

Product	DL Hours (A)	Contribution Margin per DL Hour (B)	Total Contribution (A X B)
Debbie	28400	$20.75	$589300
Trish	12600	$10.5	$132300
Sarah	39200	$20.3	$795760
Mike	11900	$6.80	$80920
Sewing Kit	51900	$21	$1089900
Total Contribution Margin			$2688180

(5) Highest Price per hour :-

Existing price per hour + Contribution lost per hour

Contribution lost for Mike

$8 + $6.80 = $14.80