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 Demand selling Next year Price (units) per Unit 53,000 $19.69 45,000 $7.99 38,000 $29.00 32.000 $13.00 328,000 $ 8.30 Direct Materials $4.60 $1.40 $6.89 52.30 $3.50 Direct Labor $ 4.40 S 1.76 $6.80 Mike Sewing kit $ 1.36 The following additional information is available: a. The company's plant has a capacity of 137.510 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 $550,000 per year. Variable overhead costs are $2 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

Answer 1

Please give positive ratings so I can keep answering. It would help me a lot. Please comment if you have any query. Thanks!

Walton Toy Company
Answer 1- Direct Labor Hour per unit
Product	Debbie	Trish	Sarah	Mike	Sewing Kit
Direct Labor cost per unit	4.40	1.76	6.80	5.20	1.36		A
Direct Labor cost per hour	8.00	8.00	8.00	8.00	8.00		B
Direct Labor hour per unit	0.55	0.22	0.85	0.65	0.17		C=A/B
Answer 2- Variable overhead cost per unit	Debbie	Trish	Sarah	Mike	Sewing Kit
Direct Labor hour per unit	0.55	0.22	0.85	0.65	0.17		C
Variable overhead cost per Direct Labor hour	2.00	2.00	2.00	2.00	2.00		D
Variable overhead cost per unit ($)	1.10	0.44	1.70	1.30	0.34		E=C*D
Answer 3- Contribution margin per direct labor hour	Debbie	Trish	Sarah	Mike	Sewing Kit
Selling price per unit	19.00	7.00	29.00	13.00	8.30		F
Direct Material per unit	4.60	1.40	6.89	2.30	3.50		G
Direct Labor cost per unit	4.40	1.76	6.80	5.20	1.36		H
Variable overhead cost per unit	1.10	0.44	1.70	1.30	0.34		As per E
Contribution per unit ($)	8.90	3.40	13.61	4.20	3.10		I=F-(G+H+E)
Direct Labor hour per unit	0.55	0.22	0.85	0.65	0.17		As per C
Contribution per direct labor hour ($)	16.18	15.45	16.01	6.46	18.24		J=I/C
Answer 4- Highest Contribution margin
For optimal utilization of direct labor that product will be produced first whose contribution per direct labor hour is highest.
	Debbie	Trish	Sarah	Mike	Sewing Kit	Total
Contribution per direct labor hour	16.18	15.45	16.01	6.46	18.24		See J
Rank	2	4	3	5	1
Demand (Units)	53,000.00	45,000.00	38,000.00	32,000.00	328,000.00		K
Direct Labor hour per unit	0.55	0.22	0.85	0.65	0.17		See C
Labor hours available		137,510.00
Demand for Sewing Kit	328,000.00		Sewing Kit has highest contribution per hour so it should be made first.
Labor hours for Sewing Kit		55,760.00
Labor hours available		81,750.00
Demand for Debbie	53,000.00		Debbie has second highest contribution per hour so it should be made after Sewing Kit.
Labor hours for Debbie		29,150.00
Labor hours available		52,600.00
Demand for Sarah	38,000.00		Sarah has third highest contribution per hour so it should be made after Debbie.
Labor hours for Sarah		32,300.00
Labor hours available		20,300.00
Demand for Trish	45,000.00		Trish has third highest contribution per hour so it should be made after Sarah.
Labor hours for Trish		9,900.00
Labor hours available		10,400.00
Direct Labor hour per unit of Mike		0.65
Number of units of Mike		16,000.00	As Mike has lowest contribution per hour so in the remaining labor time Mike should be made.
Contribution statement	Debbie	Trish	Sarah	Mike	Sewing Kit	Total
Contribution per unit ($)	8.90	3.40	13.61	4.20	3.10		See I
Number of units	53,000.00	45,000.00	38,000.00	16,000.00	328,000.00		See K
Contribution ($)	471,700.00	153,000.00	517,180.00	67,200.00	1,016,800.00	2,225,880.00	L= I*K
So highest total contribution margin company can earn is $ 2,225,880.
Answer 5-
The maximum additional labor cost per hour can be paid may equal to extra contribution earned per hour and that is contribution per hour of Mike.
Because the demand of all other products are already fulfilled by the existing labor hour so additional labor hour will be used only for production of Mike.
So the maximum additional labor cost per hour will be $ 6.46 which is the contribution per hour of Mike.
So the highest additional labor cost to be $ 8 (original rate) + 6.46 ( contribution per hour from Mike) i.e. $ 14.46.

Answer 2

Thiswas very helpful. Thank you!