The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit.
ID: 2547844 • Letter: T
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 following additional information is available:
The company’s plant has a capacity of 84,160 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 $12 per hour is expected to remain unchanged during the coming year.
Fixed costs total $640,000 per year. Variable overhead costs are $3 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. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
2. Calculate the the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year. (Do not round intermediate calculations.)
3. Based on response to Requirement 1 & 2, how much of 84,160 direct labor hours of capacity will be allocated to Walton Toy Company’s various products?
4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?
5. 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.)
Product Demand
Next year
(units) Selling
Price
per Unit Direct
Materials Direct
Labor Debbie 62,000 $20.50 $5.50 $3.60 Trish 54,000 $ 7.00 $2.30 $1.32 Sarah 47,000 $34.00 $8.24 $7.20 Mike 56,000 $15.00 $3.20 $4.80 Sewing kit 337,000 $ 9.20 $4.40 $0.72
Explanation / Answer
Answer
Working
Product
Labor per unit
Labor rate per DLH
DLH required per unit
Variable cost per unit [$3 x DLH]
Debbie
$ 3.60
$ 12.00
0.3
$ 0.90
Trish
$ 1.32
$ 12.00
0.11
$ 0.33
Sarah
$ 7.20
$ 12.00
0.6
$ 1.80
Mike
$ 4.80
$ 12.00
0.4
$ 1.20
Sewing kit
$ 0.72
$ 12.00
0.06
$ 0.18
Contribution per DLH
Variable cost per unit
Product
SP per unit (A)
Direct material (B)
Direct labor (C)
variable Overhead (D)
Contribution margin per unit (E=A-B-C-D)
DLH required per unit (F) [calculated above]
Contribution margin per DLHs (E/F)
Debbie
$ 20.50
$ 5.50
$ 3.60
$ 0.90
$ 10.50
0.3
$ 35.00
Trish
$ 7.00
$ 2.30
$ 1.32
$ 0.33
$ 3.05
0.11
$ 27.73
Sarah
$ 34.00
$ 8.24
$ 7.20
$ 1.80
$ 16.76
0.6
$ 27.93
Mike
$ 15.00
$ 3.20
$ 4.80
$ 1.20
$ 5.80
0.4
$ 14.50
Sewing kit
$ 9.20
$ 4.40
$ 0.72
$ 0.18
$ 3.90
0.06
$ 65.00
Product
Demand [units]
DLH required per unit
Total DLHs required
Debbie
62,000
0.3
18600
Trish
54,000
0.11
5940
Sarah
47,000
0.6
28200
Mike
56,000
0.4
22400
Sewing kit
3,37,000
0.06
20220
Total
5,56,000
95,360 direct labor hours
Limited DLHs allocation on the basis of maximum contribution margin per DLH
Product
Contribution margin per DLHs
Ranking to allocate DLHs
DLHs allocated
Debbie
$ 35.00
2nd
18600
Trish
$ 27.73
4th
5940
Sarah
$ 27.93
3rd
28200
Mike
$ 14.50
5th
11200 [balancing figure]
Sewing kit
$ 65.00
1st
20220
TOTAL
84160 DLHs allocated
Contribution margin earned if above product mix is used
Product
DLHs allocated
Units that can be produced from available DLHs
Contribution margin per unit
Total Contribution margin
Debbie
18600
62000
$ 10.50
$ 6,51,000.00
Trish
5940
54000
$ 3.05
$ 1,64,700.00
Sarah
28200
47000
$ 16.76
$ 7,87,720.00
Mike
11200
28000
$ 5.80
$ 1,62,400.00
Sewing kit
20220
337000
$ 3.90
$ 13,14,300.00
TOTAL
84160
$ 30,80,120.00
Highest price will be contribution margin per DLH of ‘’Mike’’ which is $14.5 per direct labor hour
Product
Labor per unit
Labor rate per DLH
DLH required per unit
Variable cost per unit [$3 x DLH]
Debbie
$ 3.60
$ 12.00
0.3
$ 0.90
Trish
$ 1.32
$ 12.00
0.11
$ 0.33
Sarah
$ 7.20
$ 12.00
0.6
$ 1.80
Mike
$ 4.80
$ 12.00
0.4
$ 1.20
Sewing kit
$ 0.72
$ 12.00
0.06
$ 0.18
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