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	62,000	$20.50	$5.50	$3.60
Trish	54,000	$ 7.00	$2.30	$1.32
Sarah	47,000	$34.00	$8.24	$7.20
Mike	56,000	$15.00	$3.20	$4.80
Sewing kit	337,000	$ 9.20	$4.40	$0.72

The following additional information is available:  

The company’s plant has a capacity of 84,160 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 $12 per hour is expected to remain unchanged during the coming year.

Fixed costs total $640,000 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. 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.)

  

3. Based on response to Requirement 1 & 2, how much of 84,160 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

• All working forms part of the answer
• Requirement 1

Working

Product	Labor per unit	Labor rate per DLH	DLH required per unit	Variable cost per unit [$3 x DLH]
Debbie	$               3.60	$                12.00	0.3	$                    0.90
Trish	$               1.32	$                12.00	0.11	$                    0.33
Sarah	$               7.20	$                12.00	0.6	$                    1.80
Mike	$               4.80	$                12.00	0.4	$                    1.20
Sewing kit	$               0.72	$                12.00	0.06	$                    0.18

Contribution per DLH

		Variable cost per unit
Product	SP per unit (A)	Direct material (B)	Direct labor (C)	variable Overhead (D)	Contribution margin per unit (E=A-B-C-D)	DLH required per unit (F) [calculated above]	Contribution margin per DLHs (E/F)
Debbie	$                 20.50	$             5.50	$                 3.60	$                          0.90	$         10.50	0.3	$        35.00
Trish	$                   7.00	$             2.30	$                 1.32	$                          0.33	$           3.05	0.11	$        27.73
Sarah	$                 34.00	$             8.24	$                 7.20	$                          1.80	$         16.76	0.6	$        27.93
Mike	$                 15.00	$             3.20	$                 4.80	$                          1.20	$           5.80	0.4	$        14.50
Sewing kit	$                   9.20	$             4.40	$                 0.72	$                          0.18	$           3.90	0.06	$        65.00

• Requirement 2.

Product	Demand [units]	DLH required per unit	Total DLHs required
Debbie	62,000	0.3	18600
Trish	54,000	0.11	5940
Sarah	47,000	0.6	28200
Mike	56,000	0.4	22400
Sewing kit	3,37,000	0.06	20220
Total	5,56,000		95,360 direct labor hours

• Requirement 3

Limited DLHs allocation on the basis of maximum contribution margin per DLH

Product	Contribution margin per DLHs	Ranking to allocate DLHs	DLHs allocated
Debbie	$                 35.00	2nd	18600
Trish	$                 27.73	4th	5940
Sarah	$                 27.93	3rd	28200
Mike	$                 14.50	5th	11200 [balancing figure]
Sewing kit	$                 65.00	1st	20220
TOTAL			84160 DLHs allocated

• Requirement 4

Contribution margin earned if above product mix is used

Product	DLHs allocated	Units that can be produced from available DLHs	Contribution margin per unit	Total Contribution margin
Debbie	18600	62000	$              10.50	$           6,51,000.00
Trish	5940	54000	$                 3.05	$           1,64,700.00
Sarah	28200	47000	$              16.76	$           7,87,720.00
Mike	11200	28000	$                 5.80	$           1,62,400.00
Sewing kit	20220	337000	$                 3.90	$         13,14,300.00
TOTAL	84160			$         30,80,120.00

• Requirement 5

Highest price will be contribution margin per DLH of ‘’Mike’’ which is $14.5 per direct labor hour