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:

The company’s plant has a capacity of 120,140 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.

What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

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:

Explanation / Answer

Product Labour hours per unit (Direct labour cost per unit /direct labour rate per hour) Demand in Units Total Labour hours Variable overhead per unit DM DL Total Variable Cost per unit Sale price Contribution per unit (Sale - Variable cost) Total Contribution Debbie 0.55 56000 30800 2.75 4.9 4.4 12.05 28.5 16.45                        9,21,200 Trish 0.16 48000 7680 0.8 1.7 1.28 3.78 6.5 2.72                        1,30,560 Sarah 0.85 41000 34850 4.25 7.34 6.8 18.39 40.5 22.11                        9,06,510 Mike 0.65 32000 20800 3.25 2.6 5.2 11.05 16 4.95                        1,58,400 Sewing kit 0.11 331000 36410 0.55 3.8 0.88 5.23 8.6 3.37                     11,15,470 Total 130540 The company's plant capacity is 120140 direct labour hours per year. Labour hours required to produce required quantity of all products = 130540 hours Additional Capacity required = 10400 hours The product Trish has lowest contribution margin compared to other products , hence company can outsource the said production.Labour hours outsourced is 7680 hours The balance labour hours = 10400 - 7680 = 2720 hours .These hours outsourced for some production of Product Mike which 2nd lowest in contribution margin. Product Hours outsourced Labour hours per unit Units outsourced Variable Cost per unit Total Variable cost Trish 7680                                        0.16                              48,000 3.78                  1,81,440 Mike 2720                                        0.65                                4,185 11.05                     46,240 Total 10400                  2,27,680 Rate per hour that Walton Toy Company willing to pay for additional capacity = Total Variable cost / Total hours outsourced Rate per hour that Walton Toy Company willing to pay for additional capacity = $227680 / 10400 hours = $21.89 per hour

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