Chapter 12 6 Saved 6 Problem 12-25 Volume Trade-Off Decisions [LO12-5, L012-6] 1

Question

Chapter 12 6 Saved 6 Problem 12-25 Volume Trade-Off Decisions [LO12-5, L012-6] 10 points 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: Demand Selling Next Price eBook year per Direct Direct Product (units) Unit Materials Labor Debbie 64,000 $22.00 Trish 56,000 8.00 Sarah 49,000 $38.50 Mike45,600 $13.00 $4.10 $3.20 $2.50 $1.04 $8.54 $5.60 $3.40 $4.00 Print sewing kit Reference 339,000 $ 9.40 $4.60 $0.64 The following additional information is available a. The company's plant has a capacity of 105,700 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 $8 per hour is expected to remain unchanged during the coming year c. Fixed manufacturing costs total $525,000 per year. Variable overhead costs are $5 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 105,700 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)? Complete this question by entering your answers in the tabs below. Required Required Required Required Required 1 2 3 4 How many direct labor hours are used to manufacture one unit of each of the company's five products? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Sewing Kit Debbie Trish Sarah Mike Direct labor hours per unit Mc

Explanation / Answer

Answer 1. Debbie Trish Sarah Mike Sewing Kit Direct Labor                   3.20              1.04               5.60               4.00                0.64 Direct Labor Rate per Hour                   8.00              8.00               8.00               8.00                8.00 Labour Hrs. required Per Unit (Direct Lab. Cost / $8                   0.40              0.13               0.70               0.50                0.08 Answer 2. Debbie Trish Sarah Mike Sewing Kit Variable Costs Direct Materials                   4.10              2.50               8.54               3.40                4.60 Direct Labor                   3.20              1.04               5.60               4.00                0.64 Variable Overhead - DLH X $5                   2.00              0.65               3.50               2.50                0.40 Total Variable Costs                   9.30              4.19             17.64               9.90                5.64 Answer 3. Calculation of Contribution Margin per Direct Labor Hour Debbie Trish Sarah Mike Sewing Kit SP Per Unit                 22.00              8.00             38.50             13.00                9.40 Less: Variable Costs                   9.30              4.19             17.64               9.90                5.64 Contribution Margin per Unit                 12.70              3.81             20.86               3.10                3.76 Labour Hrs Req. Per Unit                   0.40              0.13               0.70               0.50                0.08 Contribution Margin Per Lab. Hr                 31.75           29.31             29.80               6.20             47.00 Rank II IV III V I Answer 4. Total direct Labor Hours Required to Produce Units Estimated Debbie Trish Sarah Mike Sewing Kit Total Units Estimated              64,000         56,000           49,000           45,600         339,000 Labour Hrs Req. Per Unit                   0.40              0.13               0.70               0.50                0.08 Total lab. Hrs. Required              25,600           7,280           34,300           22,800           27,120               117,100 Answer 4. Quantity Unit Contribution Margin Labor Hrs. required per unit Total Labor Hrs Balance of Labor Hrs Total Conbtribution Total hours available         105,700 Sewing Kit            339,000              3.76               0.08           27,120           78,580           1,274,640 Debbie              64,000           12.70               0.40           25,600           52,980               812,800 Sarah              49,000           20.86               0.70           34,300           18,680           1,022,140 Trish              56,000              3.81               0.13             7,280           11,400               213,360 Mike              22,800              3.10               0.50           11,400                    -                   70,680 Total Contribution Margin           3,393,620 Answer 5. Aditional Hrs Required - Mike - 22,800 Units X 0.50 Hrs              11,400 Additional Contribution Mike - 22,800 Units X $3.10              70,680 Labor Cost - Mike              91,200 Total            161,880 Highest price per lab. Hr.                 14.20

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