Soft and Cuddly Friends (SCF) produces soft dolls. Demand for the dolls is incre

Question

Soft and Cuddly Friends (SCF) produces soft dolls. Demand for the dolls is increasing, and management wants you to identify an economical sales and production mix for the coming year. The following information is available Demand (units) Price per unit Variable costs: 70,000 58,800 49,000 56,000 100,000 $ 23.00 S 33.00 S 30.00 $ 14.00 42.00 Direct materials Direct labour 9.00 8.00 17.50 7.50 20.00 6.00 6.75 5.00 18.50 13.00 The following additional information is available a. The company's plant has a capacity of 135,000 direct labour-hours per year on a single-shift basis. The company's present employees and equipment can produce all five products b. The direct labour rate is $20 per hour; this rate is expected to remain unchanged during the coming year c. Fixed manufacturing costs amount to $660,000 per year. Variable overhead costs are $2 per direct labour-hour d. All of the company's sales and administrative costs are fixed Required 1. How many total direct labour-hours will be required to produce the units estimated to be sold during the coming year? Show your computations. (Round your answers to 2 decimal places.) DLH Per Unit Softy Friendly Goody es Lovey

Explanation / Answer

Solution:-

1. Calculation of Direct Labour Hour per unit:-

2. Analysis of Contribution per Direct Labour Hour

As per the above analysis, it is clear to use the labour to prodice Lovely as it is giving the highest Contribution per hour.

Units Produced:

135000/1.54 = 87662, whihc is already less then its demand.

3. As per the above analysis, Lowest Contribution per hour is 0.56, so SCF cannot pay $20.56 (20 + 0.56) per hour as a highest rate.

4. Ways to get the additional output:-

a. Adding another Shift

b. Contracting out some work to outside supplier.

c. Employing additional Labor Force.

Softy Friendly Goody Besty Lovely Labour Cost Per Unit 8 7.5 6 5 13 Labour Cost Per Hour 20 20 20 20 20 Labour Hours Per Unit (LC per Hour/LC per unit) 2.50 2.67 3.33 4.00 1.54

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