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: Product Debbie Trish Sarah Mike Sewing kit Demand Selling Next Price year per (units) Unit 73,000 $25.00 65,000 $6.00 58,000 $32.50 37,000 $16.00 348,000 $10.30 Direct Direct Materials Labor $5.00 $3.50 $1.90 $1.05 $9.89 $5.60 $4.30 $4.20 $5.50 $0.70 The following additional information is available The company's plant has a capacity of 138.550 direct labor hours per year on a single-shift basis. The company's present employees and equipment can produce alltive products The direct laborate of $7 per hour is expected to remain unchanged during the coming year Pued manufacturing costs total $615,000 per year Variable overhead costs are $2 per direct labor hour All of the company's manufacturing costs are fored e. The company's finished goods inventory is negligible and can be ignored. Required: How many direct labot hours are used to manufacture one unit of each of the company's five products? 2. How much blevethead cost is incurred to manufacture one unit of each of the company's five products? 3. What is the contbution to per direct laborhout for each of the company's five products Assuming that direct abhours is the company's constraining resource, what is the highest total contribution margin that the any can makes omal use of its constrained resource? 5 A r the company has made optimal use of its 138.550 direct labor hours, what is the highest direct laborate per hour that want toycompany would be willing to pay for additional capacity that is for added direct labor time Complete this question by entering your answers in the tabs below.

Answer 1

Ans 1 : Direct Labour hours used to manufacture one unit of each of Company’s Five Product :

Product	Direct Labor Cost	Hour Rate per Hour	No. of hour to manufacture one unit of product (In hours)
	(a)	(b)	(a/b)
Debbie	$3.50	$7.00	0.50
Trish	$1.05	$7.00	0.15
Sarah	$5.60	$7.00	0.80
Mike	$4.20	$7.00	0.60
Sewing Kit	$0.70	$7.00	0.10

Ans 2 : Variable Overhead Cost incurred to manufacture one unit:

Product	Direct labour to produce one unit	Hour Rate per Hour	Variable Overhead Cost per unit
	(a)	(b)	(a*b)
Debbie	0.50	$2.00	$1.00
Trish	0.15	$2.00	$0.30
Sarah	0.80	$2.00	$1.60
Mike	0.60	$2.00	$1.20
Sewing Kit	0.10	$2.00	$0.20

Ans 3: Contribution Margin per direct labour hour for each product:

Product	Selling Price	Direct Material Cost	Direct Labour Cost	Variable Overhead Cost	Total	Contribution (a-b)	Direct labour hour for one unit	Contribution per direct labour
	(a)		(b)	(c )	(d)	(c/d)
Debbie	$25.00	$5.00	$3.50	$1.00	$9.50	$15.50	0.50	$31.00
Trish	$6.00	$1.90	$1.05	$0.30	$3.25	$2.75	0.15	$18.33
Sarah	$32.50	$9.89	$5.60	$1.60	$17.09	$15.41	0.80	$19.26
Mike	$16.00	$4.30	$4.20	$1.20	$9.70	$6.30	0.60	$10.50
Sewing Kit	$10.30	$5.50	$0.70	$0.20	$6.40	$3.90	0.10	$39.00

Ans 4 : Assuming direct labour hour is the constraining resource, highest contribution margin that the company can earn :

For optimal utilization of direct labor that product will be produced first whose contribution per direct labor hour is highest.

Product	Contribution per unit	Rank	Demand	Direct labour hour for one unit	Direct Labour Hour Required	Distribution of labour Hours based on ranking when available hours is 138550	No. of units produced based on ranking when available hours is 138550	Highest Contribution
	(a)		(units)				(b)	(a*b)
Debbie	$31.00	2	73,000	0.50	36,500	36,500	73000	$22,63,000
Trish	$18.33	4	65,000	0.15	9,750	9,750	65000	$11,91,667
Sarah	$19.26	3	58,000	0.80	46,400	46,400	58000	$11,17,225
Mike	$10.50	5	37,000	0.60	22,200	11,100	18500	$1,94,250
Sewing Kit	$39.00	1	3,48,000	0.10	34,800	34,800	348000	$1,35,72,000
Total						1,38,550		1,83,38,142

Highest Contribution : 1,83,38,142$

Ans 5 :The maximum additional labour cost per hour can be paid may equal to extra contribution earned per hour and that is contribution per hour of Mike. The demand of all other products has already been fulfilled by the existing labour hour so additional labour hour will be used only for production of Mike.

Highest additional Labour Hour Rate per hour = 7$ (Original Rate)+10.50$ (Contribution of Mike) = 17.50 $

Hope the answer is full to your satisfaction and bring conceptual clarity.

Thanks