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 Demand Next Selling Price Direct Labor $ 5.00 $1.50 $ 8.00 $6.00 $ 1.00 Direct year (units)per Unit Materials Product Debbie Trish Sarah 55,000 $27.00 47,000 6.00 40,000 $40.00 35,000 $15.00 330,000 8.50 $4.80 $1.60 $7.19 $2.50 $3.70 Sewing kit 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 manufacturing 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. 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 110,050 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)?

Explanation / Answer

Debble Trish Sarah Mike Sewing Kit Req A. Labour cost per unit 5.00 1.50 8.00 6.00 1.00 Labour cost per hour 10.00 10.00 10.00 10.00 10.00 Labour hours required per unit 0.50 hr 0.15 hr 0.80 hr 0.60 hr 0.10 hr (Labor cost per unit/ Rate per hour) ReqB. Labour hour req per unit 0.50 0.15 0.80 0.60 0.10 Variable overhead rate per labour hour 4.00 4.00 4.00 4.00 4.00 Variable overhead cost per unit 2.00 0.60 3.20 2.40 0.40 Req C.Contribution per labour hour Selling price per unit 27.00 6.00 40.00 15.00 8.50 Less: Variable cost Material 4.80 1.60 7.19 2.50 3.70 Labour 5.00 1.50 8.00 6.00 1.00 Variable overhead cost 2.00 0.60 3.20 2.40 0.40 Contribution per unit 15.20 2.30 21.61 4.10 3.40 Labour hr required per unit 0.50 0.15 0.80 0.60 0.10 Contribution per hour 30.40 15.33 27.01 6.83 34.00 Ranking II IV III V I Req D Total labour hours available 110,050 Less: Hours required to produce Sewing kit 33,000 (330,000 units @0.10 per unit) Remaining hours 77,050 Less: Hours required for Debble 27500 (55,000 units @0.50 per unit) Remaining hours 49,550 Less: hours required for Sarah 32,000 (40,000 units @0.80 per unit) Remaining hours 17,550 Less: Hours required for Trish 7050 (47,000 units@0.15 per unit) Remaining hours used in Mike production 10,500 Number of mike production units(10500/0.60) 17500 Units Debble Trish Sarah Mike Sewing Kit Total Number of units produced 55000 47000 40000 17500 330000 Contribution per unit 15.2 2.3 21.61 4.1 3.4 Total contribution earned 836000 108100 864400 71750 1122000 3,002,250

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