The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for

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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 Next Selling year Price Direct Direct 70,000 $38.00 62,000 4.60 55,000 $31.00 48,000 $14.00 345,000 $10.00 B.50 $1.60 1.00 6.50 $4.00 $ 4.50 $5.20 0.50 $4.70 Debbie Trish Sarah Mike Sewing kit 9.44 $6 The following additional information is available: a. 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. b. The direct labor rate of $10 per hour is expected to remain unchanged during the coming year. c. Fixed manufacturing costs total $585,000 per year. Variable overhead costs are $3 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 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)? Complete this question by entering your answers in the tabs below. Prev 6 of 7 Next >

Explanation / Answer

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5. Because the additional capacity would be used to produce the Mike doll, the company should be willing to pay up to $19.22 per hour ($10 usual direct labor hour rate rate plus $ 9.22 contribution margin per hour) for added labor time.

Debbie Trish Sarah Mike Sewing Kit Direct Labor Dollars per Unit $ 3.50 $ 1.00 $ 6.50 $ 4.50 $ 0.50 Direct Labor Hour Rate $ 10 $ 10 $ 10 $ 10 $ 10 Direct Labor Hours per Unit 0.35 hours 0.10 hour 0.65 hours 0.45 hours 0.05 hours

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