Question
The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls is increasing, and management requests assistance
The Walton Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls 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 | Demand Next year (units) | Selling Price per Unit | Direct Materials | Direct Labor |
| Debbie | 50,000 | $13.50 | $4.30 | $3.20 |
| Trish | 42,000 | $ 5.50 | $1.10 | $2.00 |
| Sarah | 35,000 | $21.00 | $6.44 | $5.60 |
| Mike | 40,000 | $10.00 | $2.00 | $4.00 |
| Sewing kit | 325,000 | $ 8.00 | $3.20 | $1.60 |
The following additional information is available:
The companys plant has a capacity of 130,000 direct labor-hours per year on a single-shift basis. The companys 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 costs total $520,000 per year. Variable overhead costs are $2 per direct labor-hour.
All of the company's nonmanufacturing costs are fixed.
The companys finished goods inventory is negligible and can be ignored.
Required:
1. Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round your answers to 2 decimal places.)
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2. Calculate the the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year. (Do not round intermediate calculations.
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3. Based on response to Requirement 1 & 2, how much of 130,000 direct labor hours of capacity will be allocated to Walton Toy Companys various products?
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4. What is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource?
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5. What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?
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Fundamental accounting principle
Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta
21st edition
1259119831, 9781259311703, 978-1259119835, 1259311708, 978-0078025587
