5. Walton Toy Company The Walton Toy Company manufactures a line of dolls and a

Question

5. Walton Toy Company

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 Next Selling Price Direct Direct units) per Unit Materials Labor 3.60 $ 1.44 6.30 4.50 0.99 year Product Debbie Trish Sarah Mike Sewing kit $5.40 $2.20 $8.09 $3.10 $4.30 61,000 $20.00 53,000 6.50 46,000 $33.50 44,400 $14.00 336,000 $ 9.10 The following additional information is available a. The company's plant has a capacity of 113,140 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 $9 per hour is expected to remain unchanged during the coming year c. Fixed manufacturing costs total $630,000 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. 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 113,140 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)?

Explanation / Answer

As per policy, only four parts of a question is allowed to answer at a time, so answering 1 - 4:

1. DLH per unit of each five products: Product DL cost DL rate/hr. DLH per unit Debbie 3.6 9 0.4 Trish 1.44 9 0.16 Sarah 6.3 9 0.7 Mike 4.5 9 0.5 Sewing Kit 0.99 9 0.11 2. Variable overhead cost per unit: Product DLH per unit Vari o/h cost V OH / unit Debbie 0.4 2 0.8 Trish 0.16 2 0.32 Sarah 0.7 2 1.4 Mike 0.5 2 1 Sewing Kit 0.11 2 0.22 3. Contribution margin per DLH of each product: Product DM DL V OH / unit Total V costs Selling Pr. Contri /unit DLH per unit CM / dlh Debbie 5.4 3.6 0.8 9.8 20 10.2 0.4 25.50 Trish 2.2 1.44 0.32 3.96 6.5 2.54 0.16 15.88 Sarah 8.09 6.3 1.4 15.79 33.5 17.71 0.7 25.30 Mike 3.1 4.5 1 8.6 14 5.4 0.5 10.80 Sewing Kit 4.3 0.99 0.22 5.51 9.1 3.59 0.11 32.64 4. Highest total contribution margin : Product CM / dlh Preference Units produced DLH /unit Total DLHs Contri /unit Total Contri Debbie 25.50 II 61000 0.4 24400 10.2 622200 Trish 15.88 IV 53000 0.16 8480 2.54 134620 Sarah 25.30 III 46000 0.7 32200 17.71 814660 Mike 10.80 V 22200 0.5 11100 5.4 119880 Sewing Kit 32.64 I 336000 0.11 36960 3.59 1206240 TOTAL 113140 $2897600

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