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	Demand Next year (units)	Selling Price per Unit		Direct Materials		Direct Labor
Debbie	66,000	$	37.00	$	4.30	$	3.50
Trish	58,000	$	5.00	$	1.20	$	0.84
Sarah	51,000	$	35.50	$	8.84	$	5.60
Mike	37,000	$	15.00	$	3.60	$	4.20
Sewing kit	341,000	$	9.60	$	4.80	$	0.49

The following additional information is available:  

1. The company’s plant has a capacity of 115,730 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.

2. The direct labor rate of $7 per hour is expected to remain unchanged during the coming year.

3. Fixed manufacturing costs total $545,000 per year. Variable overhead costs are $3 per direct labor-hour.

4. All of the company’s nonmanufacturing costs are fixed.

5. 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 115,730 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)?

req 1

How many direct labor hours are used to manufacture one unit of each of the company’s five products? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Debbie Trish Sarah Mike Sewing Kit Direct labor hours per unit

req 2

How much variable overhead cost is incurred to manufacture one unit of each of the company’s five products? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Debbie Trish Sarah Mike Sewing Kit Variable overhead per unit

req 3

What is the contribution margin per direct labor-hour for each of the company’s five products? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Debbie Trish Sarah Mike Sewing Kit Contribution Margin per DLH

req 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? (Do not round intermediate calculations. Round your final answer to a whole dollar amount.)

	Highest total contribution margin

Answer 1

1)
				Debbie	Trish	Sarah	Mike	Sewing kit
direct labor cost per unit				3.5	0.84	5.6	4.2	0.49
direct labor rate per hour				7	7	7	7	7
direct labor hrs per unit				0.5	0.12	0.8	0.6	0.07
2)	variable overhead cost incurred
				Debbie	Trish	Sarah	Mike	Sewing kit
variable overhead cost per hour				3	3	3	3	3
direct labor hours per unit				0.5	0.12	0.8	0.6	0.07
variabe overhead cost incurred				1.5	0.36	2.4	1.8	0.21
3)	total contribution margin
Selling price				37	5	35.5	15	9.6
less:Variable costs
direct materials				4.3	1.2	8.84	3.6	4.8
direct labor				3.5	0.84	5.6	4.2	0.49
variable overhead				1.5	0.36	2.4	1.8	0.21
total variable costs				9.3	2.4	16.84	9.6	5.5
contribution margin per unit				27.7	2.6	18.66	5.4	4.1
direct labor hours per unit				0.5	0.12	0.8	0.6	0.07
contribution margin per hours				55.40	21.67	23.33	9.00	58.57	answer
Ranking				2	4	3	5	1

4)			DLH per	estimated	total
	product		unit	sale units	hours
	Debbie		0.5	66,000	33000
	trish		0.12	58,000	6960
	Sarah		0.8	51,000	40800
	mike		0.6	18,500	11,100
	sewing kit		0.07	341,000	23870
	total hours required				115,730
					Allocated	units	contribut	total
					total	produced	per unit	contribution
	product				hours
	Debbie				33,000	66,000	27.7	1828200
	trish				6,960	58,000	2.6	150800
	Sarah				40,800	51,000	18.66	951660
	mike				11,100	18,500	5.4	99900
	sewing kit				23,870	341,000	4.1	1398100
	total hours required				115,730			4428660	answer
5)
	highest price will be		$7direct labor rate +$9 contribution margin per hours
			16	answer