Question

Soft and Cuddly Friends (SCF) produces soft dolls. Demand for the dolls is increasing, and management wants you to identify an economical sales and production mix for the coming year. The following information is available: 505030 50 50 50 50 450 200 The following additional information is available: The company's plant has a capacity of 130.000 direct labour- hours per year on a single-shift basis. The company's present employees and equipment can produce all five products The direct labour rate is $18 per hour, this rate is expected to remain unchanged during the coming year. Fixed manufacturing costs amount to $870,000 per year. Variable overhead costs are $9 per direct labour-hour. All of the company's sales and administrative costs are fixed. Required: 1. How many total direct labour-hours will be required to produce the units estimated to be sold during the coming year? Show your computations. (Round your answers to 2 decimal places.) 2 Keeping in mind the direct labour-hour capacity, what should be the company's product mix for the upcoming year? Prepare a schedule in support of your recommendation (Round "Per Unit to 2 decimal places.) Product Director 2. What is the highest price, in terms of a rate per hour, that SCF would be willing to pay for additional capacity (ie., for added direct labour time)?

Answer 1

Answer is given below with full working

Total Direct Labor hours needed Total Softy Besty Lovey Hours Output Labour cost Labor hurly rate Labor hour per unit 89,000 $7.20 $18.00 0.40 Friendy 74,000 $4.50 $18.00 Goody 62,300 $12.60 $18.00 0.70 71,200 $9.00 $18.00 0.50 126,600 $3.60 $18.00 0.201 0.25 Total Labor hours (Output x labor hour/unit) 35,600 18,500 43,610 35,600 25,320 158,630 Total Softy $50.50 $6.40 $7.20 $3.60 $17.20 $33.30 0.40 83.25 Friendy $43.50 $5.60 $4.50 $2.25 Selling price Direct Material Labor cost Variable Overhead ($9 X labor time) Total Variable Cost Contribution per unit Labor hour per unit Contribution per labor unit Goody $40.50 $9.40 $12.60 $6.30 $28.30 $12.20 0.70 17.43 Besty $26.50 $7.40 $9.00 $4.50 $20.90 Lovey $36.50 $5.20 $3.60 $1.80 $10.60 $25.90 0.20 129.50 $31.15 $5.60 0.50 11.20 124.60 Ranking II IV V 35,600 18,500 43,610 25,320 Labor hours allocation Balance labor hours Production 123,030 6,970 89,000 74,000 62,300 6,970 13,940 126,600 DL Hours Softy Friendy Goody Besty Lovey 0.40 0.25 0.70 0.50 0.20 Sales Units 89,000 74,000 62,300 13,940 126,600 Total Hours 35,600 18,500 43,610 6,970 25,320 130,000 3 Highest price willing to pay for additional capacity Labor rate $18.00 Add: Contribution for Beaty/labour hour $11.20 Highest price per labor hour $29.20 Ways company could obtain additional output Adding another shift Contracting out some work to outside suppliers Employing additional labor force Expanding the workforce Eliminating waste labor time in the production Working overtime