Question

Demand for Stuffin’ Such stuffed animal shells and stuffing/finishing kits manufactured by RoseMarie Limited is increasing, and management requests assistance from you in determining the best 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 Labour
Teddy bear		14,000		$	40		$	5.30		$	2.00
Polar bear		9,000		$	42		$	4.10		$	2.50
Husky		10,000		$	35		$	3.30		$	4.50
Tiger		7,000		$	37		$	3.90		$	6.50
Stuffing/finishing kits		28,000		$	22		$	2.30		$	1.50
The following additional information is available: a. The company’s plant has a capacity of 17,325 direct labour-hours per year on a single-shift basis. The company’s current employees and equipment can produce all five products. b. The direct labour rate of $10.00 per hour is expected to remain unchanged during the coming year. c. Fixed costs total $180,000 per year. Variable overhead costs are $3.00 per direct labour-hour. d. All of the company’s non-manufacturing costs are fixed. e. The company’s finished goods inventory is negligible and can be ignored. Required: 1. Determine the contribution margin per direct labour-hour for each product . (Do not round intermediate calculations. Round your answers to 2 decimal places.) Teddy, Polar, Husky, Tiger and Stuffing/Finishing Kit 2. Prepare a schedule showing the total direct labour-hours that will be required to produce the units estimated to be sold during the coming year. Teddy, Polar, Husky, Tiger and Stuffing/Finishing Kit What is the highest price, in terms of a rate per hour, that Stuffin’ Such should be willing to pay for additional capacity (that is, for added direct labour time) to fill all the estimated sales? (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

				Teddy	Polar	Husky	Tiger	Suffing
Labour cost per unit				2.00	2.50	4.50	6.50	1.50
labour rate perr hour				10.00	10.00	10.00	10.00	10.00
labour horus per unit required				0.20	0.25	0.45	0.65	0.15
				Teddy	Polar	Husky	Tiger	Suffing
Labour cost per unit				2.00	2.50	4.50	6.50	1.50
labour rate perr hour				10.00	10.00	10.00	10.00	10.00
labour horus per unit required				0.20	0.25	0.45	0.65	0.15
Variable OH rate per hour				3.00	3.00	3.00	3.00	3.00
variable cost per unit				0.60	0.75	1.35	1.95	0.45
Req 1
				Teddy	Polar	Husky	Tiger	Suffing
Selling price				40.00	42.00	35.00	37.00	22.00
Less: variable cost
Material				5.30	4.10	3.30	3.90	2.30
Labour				2.00	2.50	4.50	6.50	1.50
Overheads				0.60	0.75	1.35	1.95	0.45
Contribution margin per unt				32.10	34.65	25.85	24.65	17.75
Divide: Labour hrs				0.20	0.25	0.45	0.65	0.15
Contribution mamrgin per hour				160.50	138.60	57.44	37.92	118.33
Ranking				I	II	IV	V	III
Req 2.
Total Hours available:				17325.00
Less: Distributed in order of ranking
teddy (14000*0.2)				2800
Polar (9000*0.25)				2250
Stuffing (28000*0.15)				4200
Husky (10000*0.45)				4500
Hours available for Tiger				3575.00
Contribution earned
		Hrs	Contribution per hour			Contributuon mrgin
Teddy		2800	160.5			449400
Polar		2250	138.6			311850
Husky		4500	57.44			258480
Tiger		3575	37.92			135564
Stuffing		4200	118.33			496986
			Total Contribution			1652280
Req 3.
Additional hourrs will be used for production of Tiger only.
Therfore, the company is ready to pay only additional ccontribution margin per our of Tiger.
Maximum prie per hour to be paid:
Exiting rate				10
Add: Contribution margin per hour of Tiger				37.92
Maximum price per hour to be paid:				47.92