Question

7 Problem 6-25 (Algo) Volume Trade-Off Decisions (L06-5, L06-6) 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: 8.33 points Skipped eBook Product Debbie Trish Sarah Mike Sewing kit Demand Next Selling year Price Direct (units) per Unit Materials 58,000 $26.00 $5.10 50,000 $ 7.50 $1.90 43,000 $41.50 $7.64 48,000 $11.00 $2.80 333,000 $ 8.80 $4.ee Direct Labor $ 2.10 $ 0.78 $ 3.90 $ 2.70 $ 0.48 References The following additional information is available: a. The company's plant has a capacity of 92,190 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 $6 per hour is expected to remain unchanged during the coming year. Fixed manufacturing costs total $600,000 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. 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 92,190 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)? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 are ysed to manufacture one unit of each of the company's five products? (Do not round

Answer 1

Product Direct Labor Debbie Trish Sarah Mike Sewing Kit Direct Demand Selling Price Material 58000 26.00 5.10 50000 7.50 1.90 43000 41.50 7.64 48000 11.00 2.80 333000 8.80 4.00 Direct Labor Hours Available Variable Overhead cost Per Unit Direct Labour Hour Rate 2.10 0.78 3.90 2.70 0.48 92190 3 61 Clacullations Product Debbie Trish Sarah Mike Sewing Kit Variable Direct Labor Direct Labors Overhead Required Cost 2.10 0.35 1.05 0.78 0.13 0.39 3.90 0.65 1.95 2.70 0.45 1.35 0.48 0.08 0.24 Contribution Contriution Margin Per Margin DLH 17.75 50.71 4.43 34.08 28.01 43.09 4.15 9.22 4.08 51.00 Variable Overhead Cost Per Unit = Direct Labor * DL Required * Variable OH Rate Contribution Margin = Selling Price- DM - DL - Varaible OH Contribution Margin Per DLH = Contribution Margin / DL Required

Product Debbie Trish Sarah Mike Sewing Kit Direct Labors Direct Labour Contribution Demand Total Hours Required Allocated Margin 58000 0.35 20300 20300 1029500 50000 0.13 6500 6500 221500 43000 0.65 27950 27950 1204430 48000 0.45 21600 10800 99600 333000 0.08 26640 26640 1358640 Total Contribution Margin 3913670 Answers 1 Debbie 0.35 Trish 0.13 Sarah 0.65 Mike 0.45 Sewing Kit 0.08 Direct Labour Hours Per Unit Debbie 1.05 Trish 0.39 Sarah 1.95 2 Variable OH Cost Per Unit Mike 1.35 Sewing Kit 0.24 Debbie 50.71 Trish 34.08 Sarah 43.09 Mike Sewing Kit 9.22 51.00 3 Contribution Margin Per DLH 4 Highest Contibution Margin 5 Highest DLH per Hour (9+10.80) 3913670 15.22