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 | 67,000 | $30.00 | $4.40 | $4.40 |
| Trish | 59,000 | $ 5.40 | $1.30 | $0.80 |
| Sarah | 52,000 | $44.00 | $8.99 | $6.80 |
| Mike | 36,000 | $16.00 | $3.70 | $5.20 |
| Sewing kit | 342,000 | $ 9.70 | $4.90 | $0.40 |
The following additional information is available:
The company’s plant has a capacity of 115,750 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 $8 per hour is expected to remain unchanged during the coming year.
Fixed costs total $555,000 per year. Variable overhead costs are $4 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 115,750 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.)
So here is a table answering your questions with coulmn numbers being part of the formula
| a | b | c | d | e | f | g | h | i | j | |
| Product | Demand | Selling | Direct | Direct | Rate per labour hour | Labour hours = d/e | Variable Overheads = f * 4 | Contribution = b-c-d-g |
Contribution margin per direct labour hour= h/f |
Direct labour hours required = a * f |
| Next year | Price | Materials | Labor | |||||||
| (units) | per Unit | |||||||||
| Debbie | 67,000 | 30 | 4.4 | 4.4 | 8 | 0.55 | 2.2 | 19 | 34.54545455 | 36850 |
| Trish | 59,000 | 5.4 | 1.3 | 0.8 | 8 | 0.1 | 0.4 | 2.9 | 29 | 5900 |
| Sarah | 52,000 | 44 | 8.99 | 6.8 | 8 | 0.85 | 3.4 | 24.81 | 29.18823529 | 44200 |
| Mike | 36,000 | 16 | 3.7 | 5.2 | 8 | 0.65 | 2.6 | 4.5 | 6.923076923 | 23400 |
| Sewing kit | 3,42,000 | 9.7 | 4.9 | 0.4 | 8 | 0.05 | 0.2 | 4.2 | 84 | 17100 |
|
127450 |
||||||||||
Accordingly answer for your first question is Column i
answer to question 2 is sum total of column j that is 127450 hours
Now answering your question 3 :-
In this case you have 115750 labour hours available whereas actual hours required to meet requirements are 127450 so now we need to allocate first to the product that gives highest contribution margin so it would be
| Product | |
| hours allocated | |
| Debbie | 36850 |
| Trish | 5900 |
| Sarah | 44200 |
| Mike | 11700 |
| Sewing kit | 17100 |
115750
Answer 4, can be calculated using the above units and the margin i.e. Answer 3 * i
= (36850*34.54)+(5900*29)+(44200*29.19)+(11700*6.92)+(17100*84)
= $4251620
Answer 5, Highest price per hour that the company would be willing to pay is the amount of contribution per labour hour that the company will earn using the additional labour in our case it is $ 6.92.
Hoping that I have resolved your query, if you found this useful please click thumbs up.
Get Answers For Free
Most questions answered within 1 hours.