Question

The Montrose 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 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 Labor
Marcy	25,200	$45.00	$4.50	$6.30
Tina	41,200	$37.00	$3.60	$5.20
Cari	39,200	$34.00	$6.90	$13.30
Lenny	45,200	$32.00	$5.10	$11.00
Sewing kit	452,000	$31.00	$3.20	$4.90

The following additional information is available:

a.	The company’s plant has a capacity of 154,800 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 $22 per hour is expected to remain unchanged during the coming year.
c.	Fixed costs total $348,000 per year. Variable overhead costs are $3 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. (Round your final answers to 2 decimal places.)

       

2.	Calculate 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.)

     

4.	What is the highest price, in terms of a rate per hour, that Montrose Toy Company should be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

      

Answer 1

1.

	Marcy	Tina	Cari	Lenny	Sewing Kit
Unit Selling Price	$45.00	$37.00	$34.00	$32.00	$31.00
Variable costs:
Direct material	$4.50	$3.60	$6.90	$5.10	$3.20
Direct labor	$6.30	$5.20	$13.30	$11.00	$4.90
Variable overhead	$0.86	$0.71	$1.81	$1.50	$0.67
Total variable cost	$11.66	$9.51	$22.01	$17.60	$8.77
Unit Contribution Margin	$33.34	$27.49	$11.99	$14.40	$22.23
Direct labor hours per unit	$0.29	$0.24	$0.60	$0.50	$0.22
Contribution Margin per hour	$116.43	$116.31	$19.83	$28.80	$99.82
Working:
	Marcy	Tina	Cari	Lenny	Sewing Kit
Direct labor cost	$6.30	$5.20	$13.30	$11.00	$4.90
Direct labor rate per hour	$22.00	$22.00	$22.00	$22.00	$22.00
Direct labor hours per unit	0.29	0.24	0.60	0.50	0.22
Variable overhead rate per hour	$3.00	$3.00	$3.00	$3.00	$3.00
Variable overhead cost per unit	$0.86	$0.71	$1.81	$1.50	$0.67

2.

Total labor hours required

163925

Working:

	Marcy	Tina	Cari	Lenny	Sewing Kit
Annual demand	25200	41200	39200	45200	452000
Direct labor hours per unit	0.29	0.24	0.60	0.50	0.22
Direct labor hours required	7216	9738	23698	22600	100673

4.

The highest price that the company would be willing to pay for additional direct labor time is $28.80, which is the lowest contribution per labor hour among the products.