Question

Walton Toy Company manufactures a line of dolls and a sewing kit Demand for the company's products is increasing, and nagement requests assistance from you in determining an economical sales and production mix for the coming year. The compa provided the following data: Demand Selling Next year Price Product Debbie Trish Sarah Mike Sewing kit Direct Direct (units) per Unit Materials Labor 64,000 22.00 $4.10 3.20 1.04 $ 5.60 45,600 $13.00 $3.40 $ 4.00 339,000 $ 9.40 $4.60 s .64 56,000 $ 8.00$2.50$ 49,000 $38.50 $8.54 The following additional information is available a. The company's plant has a capacity of 105.700 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 manufacturing costs total $525,000 per year. Variable overhead costs are $5 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. 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? 4. Assuming that direct labor-hours is the company's constraining resource, what is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource? 5. Assuming that the company has made optimal use of its 105.700 direct labor-hours, what is the highest direct labor rate per hour that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?

Answer 1

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Part a		a	b	a/b
		Direct Labor Cost	Labor Rate per hour	DL Hours Used
Debble		$                         3.20	$                               8	0.40
Trish		$                         1.04	$                               8	0.13
Sarah		$                         5.60	$                               8	0.70
Mike		$                         4.00	$                               8	0.50
Sewing Kit		$                         0.64	$                               8	0.08
Part 2
		DLH per Unit	Var Ovh Per DLH	Var Ovh Cost
Debble		0.40	$                               5	$                2.00
Trish		0.13	$                               5	$                0.65
Sarah		0.70	$                               5	$                3.50
Mike		0.50	$                               5	$                2.50
Sewing Kit		0.08	$                               5	$                0.40
Part 3
		Selling Price	Direct Material	Direct Labor	Var Ovh	Cont Margin Per unit	DLH Per unit	CM per DLH	Ranking
Debble		$                       22.00	$                          4.10	$                3.20	$           2.00	$                        12.70	0.40	$         31.75	II
Trish		$                         8.00	$                          2.50	$                1.04	$           0.65	$                          3.81	0.13	$         29.31	IV
Sarah		$                       38.50	$                          8.54	$                5.60	$           3.50	$                        20.86	0.70	$         29.80	III
Mike		$                       13.00	$                          3.40	$                4.00	$           2.50	$                          3.10	0.50	$           6.20	V
Sewing Kit		$                         9.40	$                          4.60	$                0.64	$           0.40	$                          3.76	0.08	$         47.00	I
Part 4
		DLH Per Unit	Maximum Demand	Hours Used	CM Per Unit	Contribution Margin
Sewing Kit		0.08	339,000	27,120	$           3.76	$                 1,274,640
Debble		0.40	64,000	25,600	$         12.70	$                    812,800
Sarah		0.70	49,000	34,300	$         20.86	$                 1,022,140
Trish		0.13	56,000	7,280	$           3.81	$                    213,360
Mike		0.50	22,800	11,400	$           3.10	$                      70,680
						$                 3,393,620
Working		(105700-94300)/0.5
Part 5
Additional Hours will be used for Mike. DLH Cost $                          8.00 CM per DLH $                          6.20 Maximum Price $                       14.20