Question

The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls 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 52,000 $17.00 $4.50 $2.80

Trish 44,000 $ 6.50 $1.30 $1.40

Sarah 37,000 $26.00 $6.74 $4.90

Mike 40,800 $12.00 $2.20 $3.50

Sewing kit 327,000 $ 8.20 $3.40 $1.05

The following additional information is available: a. The company’s plant has a capacity of 114,750 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 $7 per hour is expected to remain unchanged during the coming year. c. Fixed costs total $540,000 per year. Variable overhead costs are $4 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.)

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.) Based on response to Requirement 1 & 2, how much of 114,750 direct labor hours of capacity will be allocated to Walton Toy Company’s various products?          4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?       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.)

Answer 1

					Debbie	Trish	Sarah	Mike	Sewing kit
a.
	direct labor cost per unit				2.8	1.4	4.9	3.5	1.05
	direct labor hours per unit $7 labor rate				0.4	0.2	0.7	0.5	0.15
					Hrs	Hrs	Hrs	Hrs	Hrs
	Selling price				17	6.5	26	12	8.2
	less:Variable costs
	direct materials				4.5	1.3	6.74	2.2	3.4
	direct labor				2.8	1.4	4.9	3.5	1.05
	variable overhead				1.6	0.8	2.8	2	0.6
	total variable costs				8.9	3.5	14.44	7.7	5.05
	contribution margin per unit				8.1	3	11.56	4.3	3.15
	contribution margin per DLH's				20.25	15.00	16.51	8.60	21.00	answer
2)				DLH per	estimated	total
		product		unit	sale units	hours
		Debbie		0.4	52,000	20800
		trish		0.2	44,000	8800
		Sarah		0.7	37,000	25900
		mike		0.5	40,800	20400
		sewing kit		0.15	327,000	49050
		total hours required				124950
						Allocated
3)						total
		product				hours
		Debbie				20,800
		trish				8,800
		Sarah				25,900
		mike	(			10,200
		sewing kit				49,050
		total hours required				114750
4)		hightest total contribution margin							61000
				units produ	contribution	total
		product			per unit	contribution
		Debbie		52,000	8.10	421200
		trish		44,000	3.00	132000
		Sarah		37,000	11.56	427720
		mike		20,400	4.30	87720
		sewing kit		327,000	3.15	1030050
		total contribution margin				2098690
		units of mike produced in 10500 available hours
		10200/.5
		20400
5)		highest price will be		$7 direct labor rate +$8.6 contribution margin per hours
				15.6