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 63,000 $21.00 $5.60 $4.20 Trish 55,000 $ 7.50 $2.40 $1.44 Sarah 48,000 $36.50 $8.39 $7.80 Mike 48,000 $16.00 $3.30 $5.40 Sewing kit 338,000 $ 9.30 $4.50 $0.84 The following additional information is available: a. The company’s plant has a capacity of 94,310 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 $12 per hour is expected to remain unchanged during the coming year. c. Fixed costs total $650,000 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

Answer 1

1. the contribution margin per direct labor-hour expended on each product.
		Debbie	Trish	Sarah	Mike	Sewing
	Product Demand Next year (units)	63,000	55,000	48,000	48,000	338,000
	Selling Price per Unit	$21.00	$7.50	$36.50	$16.00	$9.30
Less	Direct Materials	$5.60	$2.40	$8.39	$3.30	$4.50
	Direct Labor	$4.20	$1.44	$7.80	$5.40	$0.84
	Variable Overhead [ $4* no of hrs/unit]	$                   1.40	$                   0.48	$                   2.60	$       1.80	$       0.28
	Contribution	$9.80	$3.18	$17.71	$5.50	$3.68
	Direct Labour hr/unit(in hrs)	0.35	0.12	0.65	0.45	0.07
	Contribution per hr	$                 28.00	$                 26.50	$                27.25	$    12.22	$    52.57
	Ranking for producing	II	IV	III	IV	I
2	the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year
		Product Demand Next year (units)	Direct Labour hr/unit(in hrs)	Total Hrs required (total units*hrs p.u)
	Debbie	63,000	0.35	22050
	Trish	55,000	0.12	6600
	Sarah	48,000	0.65	31200
	Mike	48,000	0.45	21600
	Sewing	338,000	0.07	23660
	TOTAL			105110 hrs
3	Based on response to Requirement 1 & 2, how much of 94310 direct labor hours of capacity will be allocated to Walton Toy Company’s various products
	Product with the highet Contribution Margin/hr will be produced first and so on
		Units Produced	Hrs required
	Sewing	338000	23660
	Debbie	63000	22050
	Sarah	48000	31200
	Trish	55000	6600
	Mike	24000	10800
			94310	hrs
4	the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource
		Units Produced	Contribution p.u	Total Contribution
	Sewing	338000	3.68	$ 1,243,840.00
	Debbie	63000	9.8	$      617,400.00
	Sarah	48000	17.71	$      850,080.00
	Trish	55000	3.18	$      174,900.00
	Mike	24000	5.5	$      132,000.00
			Ttal Contribution	$ 3,018,220.00