Question

The Brandilyn 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	31,000	$35.00	$3.20	$5.40
Tina	47,000	$21.00	$1.50	$2.40
Cari	42,000	$23.00	$4.00	$8.40
Lenny	36,000	$19.00	$2.50	$5.40
Sewing kit	480,000	$14.00	$1.20	$1.20

  

The following additional information is available:

  

a.	The company’s plant has a capacity of 103,650 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 $12.00 per hour is expected to remain unchanged during the coming year.
c.	Fixed costs total $346,000 per year. Variable overhead costs are $4.00 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. What is the highest price, in terms of a rate per hour, that Brandilyn Toy Company should be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

	Marcy	Tina	Cari	Lenny	Sewing kit
Direct labour cost per unit (a)	$5.40	$2.40	$8.40	$5.40	$1.20
Direct labour-hours per unit (c = a/$12)	0.45	0.20	0.70	0.45	0.10
Selling price	$35.00	$21.00	$23.00	$19.00	$14.00
Variable costs:
Direct materials	$3.20	$1.50	$4.00	$2.50	$1.20
Direct labour	$5.40	$2.40	$8.40	$5.40	$1.20
Variable overhead	$1.80	$0.80	$2.80	$1.80	$0.40
Total variable costs	$10.40	$4.70	$15.20	$9.70	$2.80
Contribution margin	$24.60	$16.30	$7.80	$9.30	$11.20
Contribution margin per DLH	$54.67	$81.50	$11.14	$20.67	$112.00
Product	DLH per unit	EstimatedSales(units)	Total DLHs
Marcy	0.45	31,000	13,950
Tina	0.20	47,000	9,400
Cari	0.70	42,000	29,400
Lenny	0.45	36,000	16,200
Sewing kit	0.10	4,80,000	48,000
			1,16,950
		Excess	13,300
Because the Cari doll has the lowest contribution margin per labor hour, its production should be reduced by
19,000 dolls, (13,300/0.70 DLH per Doll), Thus the production and sales of the Cari will be reduced to 23,000
dolls per year
Since the additional capacity would be used to produce the Tiger, the company should be willing to pay
up to $23.14 per DLH ($12.00 usual labour rate plus $11.14 contribution margin per DLH) for added
labour time