Question

2 Problem 12-25 Volume Trade-Off Decisions [LO12-5, LO12-6 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: points Next Se11ing yearPrice Direct Direct $4.40 $1.20 1.20 $6.59 4.50 $2.10 3.3 $3.30 0.90 1,000 $15.50 43,000 6.00 36,000 $25.00 40,000 $11.00 326,000 8.10 2.70 Trish Mike ferences The following additional information is available: a. The company's plant has a capacity of 118,450 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 c. Fixed manufacturing costs total $530,000 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 ean if it makes optimal use of its constrained resource? 5. Assuming that the company has made optimal use of its 118,450 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)? Roferences 5. Assuming that the company has made optimal use of its 118.450 direct labor-hours, what is the highest direct labor Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)? Sa cost is inc 3. What is the c that direct labor-hours is the company's constraining resource, what is the highest total contribution margin tha company can earn if it makes optimal use of its constrained resource? Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor timej? ired 5 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? labor-hours is the company's constraining resource, what is the highest total contribution margin that the company can eam if it makes optimal use of its constrained resource? S. Assuming that the company has made optimal use of its 118,450 direct labor-hours, what is the highest direct labor rate per 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 2Reapired 3Required 4 Required s What is the contribution margin per direct labor-hour for each of the company's five p lations. Round your answers to 2 decimal places.) Sewing Kit Debbie Sarah Mike Contribution Margin per DLH K Required 2 Required 4 > 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 cest 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 118,450 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)? points Complete this question by entering your answers in the tabs below. ution margin that is the the company can earn if it makes optimal use of its constrained resource? (Do not round intermediate calculations. Round your final answer to a whole dollar amount.) Required 5> C Required 3 2 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 cest 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 118,450 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 4Required s Required 2 Required 3 Required 1 Assuming that the company has made optimal use of its 118,450 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)? (Do not round intermediate calculations. Round your answers to 2 decimal places.) K Required 4

Answer 1

1. Direct labor hrs./unit
Product	Debbie	Trish	Sarah	Mike	Sewing Kit
1.Direct labor $/unit	2.7	1.2	4.5	3.3	0.9
2.Direct labor rate /hr.	6	6	6	6	6
3.Direct labor hrs./unit(1/2)	0.45	0.2	0.75	0.55	0.15
2. VOH cost /unit
Product	Debbie	Trish	Sarah	Mike	Sewing Kit
1.Direct labor hrs./unit(1/2)	0.45	0.2	0.75	0.55	0.15
2. VOH cost /unit(Row 1*$3)	1.35	0.6	2.25	1.65	0.45
3. Contribution Margin/DL hr.
Product	Debbie	Trish	Sarah	Mike	Sewing Kit
1.Selling price/unit	15.5	6	25	11	8.1
Less: Variable costs:
a. Direct materials/unit	4.4	1.2	6.59	2.3	3.3
b.Direct labor $/unit	2.7	1.2	4.5	3.3	0.9
c. VOH cost /unit(Row 1*$3)	1.35	0.6	2.25	1.65	0.45
2.Total V/C(a+b+c)	8.45	3	13.34	7.25	4.65
3.Contribution margin/unit(1-2)	7.05	3	11.66	3.75	3.45
4.Direct labor hrs./unit	0.45	0.2	0.75	0.55	0.15
5. Contribution margin/DL hr.(3/4)	15.67	15.00	15.55	6.82	23.00
6. Ranking as per 5	2	4	3	5	1
7.Demands met as per Ranking in 6	51000	43000	36000	20000	326000
8. Total D/L hrs. to produce as in 7(7*4)	22950	8600	27000	11000	48900	118450(capacity d/l hrs.)
				(Bal. fig.)
9.Contibution (8*5)	359550	129000	419760	75000	1124700
OR
10.Contibution (7*3)	359550	129000	419760	75000	1124700
11. Highest total contribution	2108010
(sum of row.9 or 10)
2. Highest D/L rate Walton Toy Co. would be willing to pay for additional labor time is
Current labor rate/hr.+Contribution /DLH for Mike foregone
ie. 6+6.82=12.82
so that demand for MIKE can be FULLY MET