Answers provided are correct Demand Next year Selling Price 69,000 per UnitDirec

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Answers provided are correct

Demand Next year Selling Price 69,000 per UnitDirect units) 61,000 $41.00 Materilais Direct Labor Trish Sarah Mike Sewing kit $ 4.50 530.50 $15.00 S 9.90 $4.60 $1.50 $9.29 $3.90 S5.10 S4.00 S1.00 S7.00 S5.00 50.50 54,000 46,800 344,000 The following additional information is available a The company's plant has a capacity of 100,400 direct labor-hours per year on a single-shift basis. The company's present employees and equipment can produce all five b. The direct labor rate of $10 per hour is expected to remain unchanged during the coming year c Fixed costs total $575,000 per year. Variable overhead costs are $2 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. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.) bution Product Margin per DLH Debbie Trish Sarah Mike Sewing kit 79.00 18.00 18.30 10,20 84.00 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.) Product Total Hours Debbie Trish Sarah Mike Sewing Kt Total hours required 27,600 6,100 37 800 23,400 17,200 112,100 3. Based on response to Requirement 1 & 2, how much of 100,400 direct labor hours of capacity will be allocated to Walton Toy Company's various products? Hours Debble 6,1 Sarah Mike Sewing kit 17,200 4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource? I contribution margin 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.) hest per hour

Explanation / Answer

1) Firstly we need to calculate direct labor hours required for each unit of each product by dividing the labour cost per unit of each product by labour rate per hour of $10. The labor hours for each product are calculated as follows:-

Calculation of contribution margin per direct labor hour (Amount in $)

2) Calculation of total direct labor hours required

3) The direct labor hours of 100,400 should be allocate to Walter toy's company according to ranking of contribution margin per direct labor hour. Allocation of labor hours is shown as follows:-

The shortage of labor hours of 11,700 (112,100-100,400) will be reduced from the total requirement of labor hours of 23,400 of product Mike because its contibution per labor hour is lower from all other products, Therefore tha allocation to product mike is 11,700(23,400-11,700).

4) Calculation of total contribution (Amount in $)

5) The additional hours will be required for the production of product mike on which the contribution margin per labor hour is $10.20. Thus the highest price that Walten toy company would be willing to pay will be $10.20.

Particulars Debbie Trish Sarah Mike Sewing kit Direct labor cost per unit (1) $4.00 $1.00 $7.00 $5.00 $0.50 Labor rate per hour (2) $10.00 $10.00 $10.00 $10.00 $10.00 Direct labor hours (1/2) 0.40 0.10 0.70 0.50 0.05 Variable cost per hour $2.00 $2.00 $2.00 $2.00 $2.00 Variable cost per unit $0.80 $0.20 $1.40 $1.00 $0.10

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