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	68,000	$31.00	$4.50	$4.20
Trish	60,000	$ 5.00	$1.40	$0.77
Sarah	53,000	$44.50	$9.14	$6.30
Mike	34,000	$17.00	$3.80	$4.90
Sewing kit	343,000	$ 9.80	$5.00	$0.42

The following additional information is available:  

1. The company’s plant has a capacity of 127,580 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 $7 per hour is expected to remain unchanged during the coming year.
3. Fixed costs total $565,000 per year. Variable overhead costs are $5 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.

Part A) Determine the contribution margin per direct labor-hour expended on each product.

Product: CM per DLH

Debbie _____

Trish _____

Sarah _____

Mike. _____

Sewing Kit.   _____

Part B) I think I have part B correct.

Product	Total Hours
Debbie	40,800
Trish	6,600
Sarah	47,700
Mike	23,800
Sewing Kit	23,800
Total hours required	142,700

Part C) Based on response to Requirement 1 & 2, how much of 127,580 direct labor hours of capacity will be allocated to Walton Toy Company’s various products?

Product	Hours
Debbie
Trish
Sarah
Mike
Sewing kit

Part D)

What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?

Part E)

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)?

Answer 1

Answer is given below with working