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: Demand Next Selling year Price Product Debbie Trish Sarah Mike Sewing kit (units) per Unit 50,000 $16.70 42,000 $ 7.50 35,000 $26.60 40,000 $14.00 325,000 $ 9.60 Direct Materials $4.30 $1.10 $6.44 $2.00 $3.20 Direct Labor $ 6.40 $ 4.00 $11.20 $ 8.00 $ 3.20 The following additional information is available: a. The company's plant has a capacity of 130,000 direct labor-hours per year on a single-shift basis. The company's present employees and equipment can produce all five products. b. The direct labor rate of $16 per hour is expected to remain unchanged during the coming year. c. Fixed manufacturing costs total $520,000 per year. Variable overhead costs are $2 per direct labor-hour. d. All of the company's nonmanufacturing costs are fixed. e. 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 130,000 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)? Superior Markets, Inc., operates three stores in a large metropolitan area. A segmented absorption costing income statement for the company for the last quarter is given below: Superior Markets, Inc. Income Statement For the Quarter Ended September 30 North South East Total Store Store Store Sales $3,000,000 $720,000 $1,200,000 $1,080,000 Cost of goods sold 1,657,200 403, 200 660,000 594,000 Gross margin 1,342,800 316,800 540,000 486,000 Selling and administrative expenses: Selling expenses 817,000 231,400 315,000 270,600 Administrative expenses 383,000 106,000 150,900 126, 100 Total expenses 1,200,000 337,400 465,900 396,700 Net operating income (loss) $ 142,800 $(20,600) $ 74,100 $ 89,300 The North Store has consistently shown losses over the past two years. For this reason, management is giving consideration to closing the store. The company has asked you to make a recommendation as to whether the store should be closed or kept open. The following additional information is available for your use: a. The breakdown of the selling and administrative expenses that are shown above is as follows: North Total South Store Store East Store $ 80,000 64,000 16,200 95,000 Selling expenses: Sales salaries Direct advertising General advertising* Store Depreciation of store fixtures Delivery salaries Depreciation of delivery equipment Total selling expenses rent $239,000 187,000 45,000 300,000 16,000 21,000 9,000 $817,000 $ 70,000 $ 89,000 51,000 72,000 10,800 18,000 85,000 120,000 4,600 7,000 7,000 3,000 3,000 $231,400 $315,000 6,000 5,400 7,000 3,000 $270,600 Total North Store South Store East Store Administrative expenses: Store managers' salaries General office salaries* Insurance on fixtures and inventory Utilities Employment taxes General office-other* Total administrative expenses $ 70,000 $ 21,000 50,000 12,000 25,000 7,500 106,000 31,000 57,000 16,500 75,000 18,000 $383,000 $106,000 $ 30,000 20,000 9,000 40,000 21,900 30,000 $150,900 $ 19,000 18,000 8,500 35,000 18,600 27,000 $126, 100 *Allocated on the basis of sales dollars. b. The lease on the building housing the North Store can be broken with no penalty. c. The fixtures being used in the North Store would be transferred to the other two stores if the North Store were closed. d. The general manager of the North Store would be retained and transferred to another position in the company if the North Store were closed. She would be filling a position that would otherwise be filled by hiring a new employee at a salary of $11,000 per quarter. The general manager of the North Store would continue to earn her normal salary of $12,000 per quarter. All other managers and employees in the North store would be discharged. e. The company has one delivery crew that serves all three stores. One delivery person could be discharged if the North Store were closed. This person's salary is $4,000 per quarter. The delivery equipment would be distributed to the other stores. The equipment does not wear out through use, but does eventually become obsolete. f. The company pays employment taxes equal to 15% of their employees' salaries. g. One-third of the insurance in the North Store is on the store's fixtures. h. The "General office salaries" and "General office-other" relate to the overall management of Superior Markets, Inc. If the North Store were closed, one person in the general office could be discharged because of the decrease in overall workload. This person's compensation is $6,000 per quarter. Required: 1. How much employee salaries will the company avoid if it closes the North Store? 2. How much employment taxes will the company avoid if it closes the North Store? 3. What is the financial advantage (disadvantage) of closing the North Store? 4. Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store? 3. What is the financial advantage (disadvantage) of closing the North Store? 4. Assuming that the North Store's floor space can't be subleased, would you recommend closing the North Store? 5. Assume that the North Store's floor space can't be subleased. However, let's introduce three more assumptions. First, assume that if the North Store were closed, one-fourth of its sales would transfer to the East Store, due to strong customer loyalty to Superior Markets. Second, assume that the East Store has enough capacity to handle the increased sales that would arise from closing the North Store. Third, assume that the increased sales in the East Store would yield the same gross margin as a percentage of sales as present sales in the East store. Given these new assumptions, what is the financial advantage (disadvantage) of closing the North Store? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 How much employee salaries will the company avoid if it closes the North Store? Employee salaries