Question

Problem 7-25 Utilization of a Constrained Resource [LO7-5, LO7-6] 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	Selling Price Per Unit	Direct Materials	Direct labor
Debbie	50,000.00	$13.50	$4.30	$3.20
Trish	42,000.00	$5.50	$1.10	$2.00
Sarah	35,000.00	$21.00	$6.44	$5.60
Mike	40,000.00	$10.00	$2.00	$4.00
Sweing Kit	325,000.00	$8.00	$3.20	$1.60

The following additional information is available: The company’s plant has a capacity of 100,400 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 $10 per hour is expected to remain unchanged during the coming year. Fixed costs total $575,000 per year. Variable overhead costs are $2 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 100,400 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