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Problem 1 3 - 2 7 ( Algo ) Volume Trade - Off Decisions [ L 0 1 3 - 5 , L 0 1
Problem Algo Volume TradeOff Decisions L L
The Walton Toy Company manufactures four dolls and a sewing kit. It provided the following data for next year:
The following additional information is available:
a The company's plant has a capacity of direct laborhours per year on a singleshift basis. Each employee and piece of
equipment are capable of making all five products.
b Next year's direct labor pay rate will be $ per hour.
c Fixed manufacturing costs total $ per year. Variable overhead costs are $ per direct laborhour.
d All of the company's nonmanufacturing costs are fixed.
e The company's finished goods inventory is negligible and can be ignored.
Required:
How many direct laborhours are used to manufacture one unit of each of the company's five products?
How much variable overhead cost is incurred to manufacture one unit of each of the company's five products?
What is the contribution margin per direct laborhour for each of the company's five products?
Assuming direct laborhours is the company's constraining resource, what is the highest total contribution margin the company
can earn next year if it makes optimal use of its constrained resource?
Assuming next year the company makes optimal use of its direct laborhours, what is the highest direct labor rate per
hour Walton Toy Company should be willing to pay for additional capacity that is for added direct labor time
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