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Utilization of a Constrained Resource The Disney Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls is
Utilization of a Constrained Resource The Disney 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 Minnie Mickey Demand Next Year Selling Price Direct (units) per unit Materials Direct Labor 60,000 $ 18.50 5.85 $ 7.00 75,000 $ 15.50 $ 3.00 $ 5.00 250,000 $ 8.00 $ 2.50 $ 1.50 Sewing Kit The following additional information is available: 1. The company's plant has a capacity of 140,000 direct labor-hours per year on a single-shift basis. The company's present employees and equipment can produce all three products. 2. The direct labor rate of $8 per hour is expected to remain unchanged during the coming year. 3. Fixed costs total $475,000 per year. Variable overhead costs are $3.50 per direct labor-hour. 4. All of the company's nonmanufacturing costs are fixed. 5. The company's finished goods inventory is negligible and can be ignored. Required: a. Determine the contribution margin per direct labor-hour expended on each product. [3 marks] b. Can Disney Toy Company meet the full demand for each product? Explain with computations. [4 marks] c. Based on your analysis from parts a and b, calculate the contribution margin for the product line with the highest contribution margin per direct labor-hour. [1 mark]
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