The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit.

Question

The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls 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 Demand Next year Selling Direct Labor Price Direct Product (units) Materials $4.80 $1.60 $7.19 $2.50 $3.70 per Unit Debbie Trish Sarah Mike Sewing kit 55,000 47,000 40,000 35,000 330,000 $27.00 $ 6.00 $40.00 $15.00 $ 8.50 $5.00 $1.50 $8.00 6.00 $1.00 The following additional information is available a. The company's plant has a capacity of 110,050 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 $10 per hour is expected to remain unchanged during the coming year. c. Fixed costs total $570,000 per year. Variable overhead costs are $4 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. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Explanation / Answer

1. Calculation of contribution margin per direct labour hour Debbie Trish Sarah Mike Sewing kit Selling price ($) 27 6 40 15 8.5 Less: Direct materials 4.8 1.6 7.19 2.5 3.7 Direct Labour 5 1.5 8 6 1 Variable overhead cost 2 0.6 3.2 2.4 0.4 Contribution margin (A) 15.2 2.3 21.61 4.1 3.4 Direct Labour hour pu (B) 0.5 0.15 0.8 0.6 0.1 Contribution margin per direct labour hour (A/B) 30.4 15.33 27.01 6.83 34.00 Calculation direct labour hours required per unit Debbie Trish Sarah Mike Sewing kit Direct labour rate (A) 10 10 10 10 10 Direct labour hour cost($) (B) 5 1.5 8 6 1 Direct Labour hour pu (B/A) 0.5 0.15 0.80 0.60 0.10 2. Calculation of requirement of direct labour hours Product Demand (A) Direct Labour required per unit (B) Total requirement (A*B) Debbie 55000 0.5 27500 Trish 47000 0.15 7050 Sarah 40000 0.8 32000 Mike 35000 0.6 21000 Sewing kit 330000 0.1 33000 Total 120550 3. Allocation of direct labour hours Product Rank Demand fullfilled Direct Labour required per unit Total Available Debbie 2 55000 0.5 27500 Trish 4 47000 0.15 7050 Sarah 3 40000 0.8 32000 Mike 5 17500 0.6 10500 (Remaining after filling all other demand) Sewing kit 1 330000 0.1 33000 Total 110050 Note: Products are ranked on the basis of the direct labour hour contribution margin. Highect contribution product being given the rank one. And so on. since mike is having least contribution only the reamining direct labours are utilised towards it. 4. Calculation of contribution Product Demand fullfilled(A) Contribution p u (B) Total contribution (A*B) Debbie 55000 15.2 836000 Trish 47000 2.3 108100 Sarah 40000 21.61 864400 Mike 17500 4.1 71750 Sewing kit 330000 3.4 1122000 Total 3002250

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