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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:Product DemandNext year(units) SellingPriceper Unit DirectMaterials DirectLaborDebbie 53,000 $ 19.00 $ 4.60 $ 4.40Trish 45,000 $ 7.00 $ 1.40 $ 1.76Sarah 38,000 $ 29.00 $ 6.89 $ 6.80Mike 32,000 $ 13.00 $ 2.30 $ 5.20Sewing kit 328,000 $ 8.30 $ 3.50 $ 1.36The following additional information is available: The company’s plant has a capacity of 137,510 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 manufacturing costs total $550,000 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 137,510 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)?

Respuesta :

Answer:

Explanation:

Requirement 1 and Requirement 2:

Debbie Trish Sarah Mike Sewing Kit

Direct Labor Cost (a) $4.40 $1.76 $6.80 $5.20 $1.36

Labor Cost per hour (b) $8 $8 $8 $8 $8

Required 1 Direct labor hour used ( c) = (a/b) 0.55 0.22 0.85 0.65 0.17

Variable Overhead cost per hour (d) $2 $2 $2 $2 $2

Required 2 Variable Overhead cost ( e) = (c x d) $1.10 $0.44 $1.70 $1.30 $0.34

Requirement 3:

Particulars Debbie Trish Sarah Mike Sewing Kit

Selling Price Per Unit $19.00 $7.00 $29.00 $13.00 $8.30

Less: Variable Cost

Direct Material Cost $4.60 $1.40 $6.89 $2.30 $3.50

Direct Labor cost $4.40 $1.76 $6.80 $5.20 $1.36

Variable Overhead cost $1.10 $0.44 $1.70 $1.30 $0.34

Contribution Margin (a) $8.90 $3.40 $13.61 $4.20 $3.10

Direct Labor hour used (b) 0.55 0.22 0.85 0.65 0.17

Required 3 Contribution Margin per direct labor hour (a/b) $16.18 $15.45 $16.01 $6.46 $18.24

Ranking 2 4 3 5 1

Requirement 4:

Debbie Trish Sarah Mike Sewing Kit Total

Demand Next Year…..(a) 53,000 45,000 38,000 32,000 328,000

Direct Labor hour used….(b) 0.55 0.22 0.85 0.65 0.17

Total direct labor hour needed…..(c ) = (a x b) 29150 9900 32300 20800 55760 147910

Ranking 2 4 3 5 1

Direct Labor hour used…(g) 29150 9900 32300 10,400 55760 137510

Contribution per direct labor hour..(e ) $16.18 $15.45 $16.01 $6.46 $18.24

Required 4 Total Contribution….(f) = (c x g) $471,647.00 $152,955.00 $517,123.00 $67,184.00 $1,017,062.40 $2,225,971.40

Requirement 5:

Additional Contribution due to additional capacity = (147,910 - 137,510) x $6.46

...............................................................................= 10,400 x 6.46

...............................................................................= $67,184

Highest direct labor rate per hour = $8 + $6.46

......................................................= $14.46

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