The Walton Toy Company manufactures a line of dolls and a se

The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company’s products 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:

The following additional information is available:  

The company’s plant has a capacity of 138,550 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 $7 per hour is expected to remain unchanged during the coming year.

Fixed manufacturing costs total $615,000 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. How many direct labor hours are used to manufacture one unit of each of the company’s five products?

2. How much variable overhead cost is incurred to manufacture one unit of each of the company’s five products?

3. What is the contribution margin per direct labor-hour for each of the company’s five products?

4. Assuming that direct labor-hours is the company’s constraining resource, what is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?

5. Assuming that the company has made optimal use of its 138,550 direct labor-hours, what is the highest direct labor rate per hour that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?

Product	Demand Next year (units)	Selling Price per Unit	Direct Materials	Direct Labor
Debbie	73,000	$	25.00	$	5.00	$	3.50
Trish	65,000	$	6.00	$	1.90	$	1.05
Sarah	58,000	$	32.50	$	9.89	$	5.60
Mike	37,000	$	16.00	$	4.30	$	4.20
Sewing kit	348,000	$	10.30	$	5.50	$	0.70

Solution

1) Debbie Trish Sarah Mike Sewing kit direct labor cost per unit 3.5 1.05 5.6 4.2 0.7 direct labor rate per hour 7 7 7 7 7 direct labor hrs per unit 0.5 0.15 0.8 0.6 0.1 2) variable overhead cost incurred Debbie Trish Sarah Mike Sewing kit variable overhead cost per hour 2 2 2 2 2 direct labor hours per unit 0.5 0.15 0.8 0.6 0.1 variabe overhead cost incurred 1 0.3 1.6 1.2 0.2 3) total contribution margin Selling price 25 6 32.5 16 10.3 less:Variable costs direct materials 5 1.9 9.89 4.3 5.5 direct labor 3.5 1.05 5.6 4.2 0.7 variable overhead 1 0.3 1.6 1.2 0.2 total variable costs 9.5 3.25 17.09 9.7 6.4 contribution margin per unit 15.5 2.75 15.41 6.3 3.9 direct labor hours per unit 0.5 0.15 0.8 0.6 0.1 contribution margin per hours 31.00 18.33 19.26 10.50 39.00 Raning 2 4 3 5 1 demand CM total product per uni contribution Debbie 73,000 15.5 1,131,500 trish 65,000 2.75 178750 Sarah 58,000 15.41 893780 mike 37,000 6.3 233100 sewing kit 348,000 3.9 1357200 total contribution margin 138 3,794,330 4) DLH per estimated total product unit sale units hours Debbie 0.5 73,000 36500 trish 0.15 65,000 9750 Sarah 0.8 58,000 46400 mike 0.6 18,500 11,100 sewing kit 0.1 348,000 34800 total hours required 138,550 Allocated units contribut total total produced per unit contribution product hours Debbie 36,500 73,000 15.5 1131500 trish 9,750 65,000 2.75 178750 Sarah 46,400 58,000 15.41 893780 mike 11,100 18,500 6.3 116550 sewing kit 34,800 348,000 3.9 1357200 total hours required 138,550 3677780 answer 5) highest price will be   $7direct labor rate +10.50contribution margin per hours 17.50 answer