Question

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	71,000	$	17.50	$	4.80	$	3.20
Trish	63,000	$	6.00	$	1.70	$	1.60
Sarah	56,000	$	31.50	$	9.59	$	5.60
Mike	47,600	$	13.00	$	4.10	$	4.00
Sewing kit	346,000	$	10.10	$	5.30	$	1.20

The following additional information is available:  

The company’s plant has a capacity of 144,000 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.

The direct labor rate of $8 per hour is expected to remain unchanged during the coming year.

Fixed manufacturing costs total $595,000 per year. Variable overhead costs are $3 per direct labor-hour.

All of the company’s nonmanufacturing costs are fixed.

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 144,000 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)?

Answer 1

working
Product	Demand	Selling	Direct	Direct	Variable overhead	Contribution margin per unit S-M-L_V	Direct labor hours used per unit D	Contribution margin per direct labor hour C/D
	Next year	Price	Materials	Labor
	(units)	per Unit
Debbie	71,000	17.5	4.8	3.2	$1.20	$8.30	0.40	$20.75
Trish	63,000	6	1.7	1.6	$0.60	$2.10	0.20	$10.50
Sarah	56,000	31.5	9.59	5.6	$2.10	$14.21	0.70	$20.30
Mike	47,600	13	4.1	4	$1.50	$3.40	0.50	$6.80
Sewing kit	346,000	10.1	5.3	1.2	$0.45	$3.15	0.15	$21.00
	Debbie	Trish	Sarah	Mike	Sewing kit
ans 1 Direct labor hours used	0.40	0.20	0.70	0.50	0.15
	(3.2/8)	(1.6/8)	(5.6/8)	(4/8)	1.2/8
ans 2
	Debbie	Trish	Sarah	Mike	Sewing kit
Direct labor hours used D	0.4	0.2	0.7	0.5	0.15
Variable overhead rate per hour V	$3	$3	$3	$3	$3
answer variable overhead cost incurred D*V	$1.20	$0.60	$2.10	$1.50	$0.45
ans 3
Cobtribution margin per direct labor hour	$20.75	$10.50	$20.30	$6.80	$21.00
ans 4
	Next year	Ranking	No. of direct labor hrs required per unit	Total hours required U*N	Constrained DLH	Now distributing hours	Contribution margin per direct labor hour C/D	Max contribution margin H*L
	(units) U		N			H	L
Debbie	71,000	2	0.4	28400	144000	28400	$20.75	$589,300
Trish	63,000	4	0.2	12600	144000	12600	$10.50	$132,300
Sarah	56,000	3	0.7	39200	144000	39200	$20.30	$795,760
Mike	47,600	5	0.5	23800	144000	11900	$6.80	$80,920
						(144000-132100)
Sewing kit	346,000	1	0.15	51900	144000	51900	$21.00	$1,089,900
						144000	Total	$2,688,180
Maximum contribution margin	$2,688,180
ans 5
Highest rate is the contribution margin per direct labor hour forgone for Mike as for it only hours are required
$8+6.8	14.8
If any doubt please comment