The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for

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:

The following additional information is available:  

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.

The direct labor rate of $9 per hour is expected to remain unchanged during the coming year.

Fixed manufacturing costs total $630,000 per year. Variable overhead costs are $2 per direct labor-hour.

All of the company’s nonmanufacturing costs are fixed.

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)?

Product Demand
Next year
(units) Selling
Price
per Unit Direct
Materials Direct
Labor Debbie 61,000 $ 20.00 $ 5.40 $ 3.60 Trish 53,000 $ 6.50 $ 2.20 $ 1.44 Sarah 46,000 $ 33.50 $ 8.09 $ 6.30 Mike 44,400 $ 14.00 $ 3.10 $ 4.50 Sewing kit 336,000 $ 9.10 $ 4.30 $ 0.99

Explanation / Answer

The highest total contribution margin with optimal use of constrained resource is $2897600.

Per Chegg guidelines, 4 sub-parts have been answered.

1 Debbie Trish Sarah Mike Sewing Kit Direct labor cost $ 3.60 1.44 6.30 4.50 0.99 Direct labor rate per hour $ 9 9 9 9 9 Direct labor hours per unit 0.40 0.16 0.70 0.50 0.11 2 Debbie Trish Sarah Mike Sewing Kit Direct labor hours per unit 0.40 0.16 0.70 0.50 0.11 Variable overhead cost per direct labor hour $ 2 2 2 2 2 Variable overhead cost per unit $ 0.80 0.32 1.40 1.00 0.22 3 Debbie Trish Sarah Mike Sewing Kit Selling price $ 20.00 6.50 33.50 14.00 9.10 Less: Variable costs Direct materials 5.40 2.20 8.09 3.10 4.30 Direct labor 3.60 1.44 6.30 4.50 0.99 Variable overheads 0.80 0.32 1.40 1.00 0.22 Total variable costs 9.80 3.96 15.79 8.60 5.51 Contribution margin per unit $ 10.20 2.54 17.71 5.40 3.59 Direct labor hours per unit 0.40 0.16 0.70 0.50 0.11 Contribution margin per direct labor hour $ 25.50 15.88 25.30 10.80 32.64 4 Debbie Trish Sarah Mike Sewing Kit Total Contribution margin per direct labor hour $ 25.50 15.88 25.30 10.80 32.64 Ranking II IV III V I Demand (units) 61000 53000 46000 44400 336000 Direct labor hours required per unit 0.40 0.16 0.70 0.50 0.11 Total direct labor hours 24400 8480 32200 11100 36960 113140 (Remaining) Number of units 61000 53000 46000 22200 336000 (11100/0.50) Contribution margin per unit $ 10.20 2.54 17.71 5.40 3.59 Total contribution margin $ 622200 134620 814660 119880 1206240 2897600

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