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 Demand Next Selling Direct (units) per Unit MaterialsLabor 2.10 0.70 4.20 $ 2.80 $0.35 ar Price Direct Product Debbie Trish Sarah Mike Sewing kit 59,000 $30.00 51,000 7.00 44,000 $42.00 54,500 $12.00 334,000 8.90 $5.20 $2.00 $7.79 $2.90 $4.10 The following additional information is available a. The company's plant has a capacity of 76,800 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 manufacturing costs total $610,000 per year. Variable overhead costs are $4 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?

Answer 1

Product	Debbie	Trish	Sarah	Mike	Sewing Kit
Direct labor cost	$          2.10	$        0.70	$         4.20	$        2.80	$           0.35
(÷) Direct labor rate per hour	$         7.00	$        7.00	$         7.00	$        7.00	$          7.00
No. of Direct labor hours required per Unit (1)	0.30	0.10	0.60	0.40	0.05
(x) Variable Overhead costs per direct-labour hour	$              4	$             4	$              4	$             4	$               4
Variable OH cost per unit (2)	$          1.20	$        0.40	$         2.40	$         1.60	$          0.20

Product	Debbie	Trish	Sarah	Mike	Sewing Kit	Total
Selling Price p.u.	$      30.00	$        7.00	$       42.00	$       12.00	$          8.90
Less: Variable Cost p.u.
Direct Material	$        (5.20)	$       (2.00)	$        (7.79)	$       (2.90)	$          (4.10)
Direct Labor	$        (2.10)	$       (0.70)	$       (4.20)	$       (2.80)	$         (0.35)
Variable OH	$        (1.20)	$      (0.40)	$       (2.40)	$       (1.60)	$         (0.20)
Total variable Costs p.u.	$        (8.50)	$        (3.10)	$       (14.39)	$       (7.30)	$         (4.65)
Contribution Margin p.u,	$        21.50	$        3.90	$        27.61	$        4.70	$           4.25
(÷) Direct labor hours required p.u.	0.30	0.10	0.60	0.40	0.05
Contribution Margin per labor hour (3)	$            72	$           39	$            46	$            12	$              85
Ranking of Allocation of labour hours	II	IV	III	V	I
Estimated Demand	59,000	51,000	44,000	54,500	334,000
(x) No. of labor hours required per unit	0.30	0.10	0.60	0.40	0.05
Total labor hours required	17,700	5,100	26,400	21,800	16,700	87,700
Allocation of labor hours	17,700	5,100	26,400	10,900	16,700	76,800
(÷) No. of hours per unit	0.30	0.10	0.60	0.40	0.05
Estimated Production	59,000	51,000	44,000	27,250	334,000
(x) Contribution p.u.	$        21.50	$        3.90	$        27.61	$        4.70	$           4.25
Estimated Total Contribution (4)	$ 1,268,500	$   198,900	$ 1,214,840	$    128,075	$   1,419,500	$ 4,229,815