Question

In: Accounting

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

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:

Product Demand
Next year
(units)
Selling
Price
per Unit
Direct
Materials
Direct
Labor
Debbie 61,000 $ 20.00 $ 5.40 $ 3.60
Trish 53,000 $ 6.50 $ 2.20 $ 1.44
Sarah 46,000 $ 33.50 $ 8.09 $ 6.30
Mike 44,400 $ 14.00 $ 3.10 $ 4.50
Sewing kit 336,000 $ 9.10 $ 4.30 $ 0.99

The following additional information is available:  

  1. The company’s plant has a capacity of 113,140 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.

  2. The direct labor rate of $9 per hour is expected to remain unchanged during the coming year.

  3. Fixed manufacturing costs total $630,000 per year. Variable overhead costs are $2 per direct labor-hour.

  4. All of the company’s nonmanufacturing costs are fixed.

  5. 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?

Solutions

Expert Solution

1)
Debbie Trish Sarah Mike Sewing kit
direct labor cost per unit 3.6 1.44 6.3 4.5 0.99
direct labor rate per hour 9 9 9 9 9
direct labor hrs per unit 0.4 0.16 0.7 0.5 0.11
2) variable overhead cost incurred
Debbie Trish Sarah Mike Sewing kit
variable overhead cost per hour 2 2 2 2 2
direct labor hours per unit 0.4 0.16 0.7 0.5 0.11
variabe overhead cost incurred 0.8 0.32 1.4 1 0.22
3) total contribution margin
Selling price 20 6.5 33.5 14 9.1
less:Variable costs
direct materials 5.4 2.2 8.09 3.1 4.3
direct labor 3.6 1.44 6.3 4.5 0.99
variable overhead 0.8 0.32 1.4 1 0.22
total variable costs 9.8 3.96 15.79 8.6 5.51
contribution margin per unit 10.2 2.54 17.71 5.4 3.59
direct labor hours per unit 0.4 0.16 0.7 0.5 0.11
contribution margin per hours 25.50 15.88 25.30 10.80 32.64 answer
Ranking 2 4 3 5 1
4) DLH per estimated total
product unit sale units hours
Debbie 0.4 61,000 24400
trish 0.16 53,000 8480
Sarah 0.7 46,000 32200
mike 0.5 22,200 11,100
sewing kit 0.11 336,000 36960
total hours required 113,140
Allocated units contribut total
total produced per unit contribution
product hours
Debbie 24,400 61,000 10.2 622200
trish 8,480 53,000 2.54 134620
Sarah 32,200 46,000 17.71 814660
mike 11,100 22,200 5.4 119880
sewing kit 36,960 336,000 3.59 1206240
total hours required 113,140 2897600 answer

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