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 94,500 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 $10 per hour is expected to remain unchanged during the coming year.

Fixed manufacturing costs total $585,000 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. 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 94,500 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 70,000 $ 38.00 $ 4.70 $ 3.50 Trish 62,000 $ 4.60 $ 1.60 $ 1.00 Sarah 55,000 $ 31.00 $ 9.44 $ 6.50 Mike 48,000 $ 14.00 $ 4.00 $ 4.50 Sewing kit 345,000 $ 10.00 $ 5.20 $ 0.50

Explanation / Answer

Solution:

1, 2 and 3.

4.

The highest possible contribution margin is the sum of the contribution margins earned on each of the five products, or $4,469,900.

5. Because the additional capacity will be used to produce the Trish doll, the company should be willing to pay up to $10 usual rate + $1.7 contribution margin per hour = $11.7 for added labor time. Hence, the company can employ workers for overtime at the usual time-and-a-half rate of $10 x 1.5 = $15 and still improve overall profit.

Debbie Trish Sarah Mike Sewing Kit Direct labor cost per unit 3.5 1 6.5 4.5 0.5 Direct labor hours per unit*(a) 0.35 0.1 0.65 0.45 0.05 Selling price 38 4.6 31 14 10 Variable costs Direct Materials 4.7 1.6 9.44 4 5.2 Direct Labor 3.5 1 6.5 4.5 0.5 Variable overhead 1.05 0.3 1.95 1.35 0.15 Total variable costs 9.25 2.9 17.89 9.85 5.85 Contriution margin (b) 28.75 1.7 13.11 4.15 4.15 Contribution margin per DLH (b) /(a) 82.14 17.00 20.17 9.22 83.00 *Direct labor cost per unit/10 per direct labor hours

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.