The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the companys 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:

1. The companys plant has a capacity of 138,550 direct labor-hours per year on a single-shift basis. The companys present employees and equipment can produce all five products.

2. The direct labor rate of $7 per hour is expected to remain unchanged during the coming year.

3. Fixed manufacturing costs total $615,000 per year. Variable overhead costs are $2 per direct labor-hour.

4. All of the companys nonmanufacturing costs are fixed.

5. The companys finished goods inventory is negligible and can be ignored.

Required:

4. Assuming that direct labor-hours is the companys 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)?

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