The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company’s products is increas…
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Question “The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company’s products is increas…”
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: Product Debbie Trish Sarah Demand selling Next year Price (units) per Unit 53,000 $19.69 45,000 $7.99 38,000 $29.00 32.000 $13.00 328,000 $ 8.30 Direct Materials $4.60 $1.40 $6.89 52.30 $3.50 Direct Labor $ 4.40 S 1.76 $6.80 Mike Sewing kit $ 1.36 The following additional information is available: a. The company’s plant has a capacity of 137.510 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 $8 per hour is expected to remain unchanged during the coming year. c. Fixed manufacturing costs total $550,000 per year. Variable overhead costs are $2 per direct labor-hour d. All of the company’s nonmanufacturing costs are fixed e. The company’s finished goods inventory is negligible and can be ignored
Required: 1. How many direct labor hours are used to manufacture one unit of each of the company’s five products? 2. How much variable overhead cost is incurred to manufacture one unit of each of the company’s five products? 3. What is the contribution margin per direct labor-hour for each of the company’s five products? 4. Assuming that direct labor-hours is the company’s constraining resource, what is the highest total contribution margin that the company can earn if it makes optimal use of its constrained resource? ompany has made optimal use of its 137,510 direct labor-hours, what is the highest direct labor rate per hour that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?
Answer
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Walton Toy Company | |||||||
Answer 1- Direct Labor Hour per unit | |||||||
Product | Debbie | Trish | Sarah | Mike | Sewing Kit | ||
Direct Labor cost per unit | 4.40 | 1.76 | 6.80 | 5.20 | 1.36 | A | |
Hourly cost of direct labor | 8.00 | 8.00 | 8.00 | 8.00 | 8.00 | B | |
Hours of Direct Labor per Unit |
0.55 |
0.22 |
0.85 |
0.65 |
0.17 | C=A/B | |
Answer 2- Variable overhead cost per unit | Debbie | Trish | Sarah | Mike | Sewing Kit | ||
Hours of direct labor per unit | 0.55 | 0.22 | 0.85 | 0.65 | 0.17 | C | |
Variable overhead cost per hour of direct labor | 2.00 | 2.00 | 2.00 | 2.00 | 2.00 | D | |
Variable overhead cost per unit ($) |
1.10 |
0.44 |
1.70 |
1.30 |
0.34 | E=C*D | |
Answer 3- Contribution margin per direct labor hour | Debbie | Trish | Sarah | Mike | Sewing Kit | ||
Selling price per unit | 19.00 | 7.00 | 29.00 | 13.00 | 8.30 | F | |
Direct Material per unit | 4.60 | 1.40 | 6.89 | 2.30 | 3.50 | G | |
Direct Labor cost per unit | 4.40 | 1.76 | 6.80 | 5.20 | 1.36 | H | |
Variable overhead cost per unit | 1.10 | 0.44 | 1.70 | 1.30 | 0.34 | As per E | |
Contribution per unit ($) |
8.90 |
3.40 |
13.61 |
4.20 |
3.10 | I=F-(G+H+E) | |
Hours of direct labor per unit | 0.55 | 0.22 | 0.85 | 0.65 | 0.17 | As per C | |
Contribution per direct labor hour ($) |
16.18 |
15.45 |
16.01 |
6.46 |
18.24 | J=I/C | |
Answer 4- Highest Contribution margin | |||||||
To maximize direct labor utilization, the product that contributes the most per hour will be made first. | |||||||
Debbie | Trish | Sarah | Mike | Sewing Kit | Total | ||
Contribution per direct labor hour |
16.18 |
15.45 |
16.01 |
6.46 |
18.24 | See J | |
Rank | 2 | 4 | 3 | 5 | 1 | ||
Demand (Units) | 53,000.00 | 45,000.00 | 38,000.00 | 32,000.00 | 328,000.00 | K | |
Hours of direct labor per unit | 0.55 | 0.22 | 0.85 | 0.65 | 0.17 | See C | |
Hours of work available | 137,510.00 | ||||||
Need for Sewing Kits | 328,000.00 | Sewing Kit is the most productive hourly contribution, so it should always be done first. | |||||
Hours of labor for sewing kit | 55,760.00 | ||||||
Hours of work available | 81,750.00 | ||||||
Debbie is in high demand | 53,000.00 | Debbie makes the second-highest contribution per hour, so it should be done after Sewing Kit. | |||||
Hours of work for Debbie | 29,150.00 | ||||||
Hours of work available | 52,600.00 | ||||||
Sarah is in High Demand | 38,000.00 | Sarah is the third most productive hourly worker, so it should be done after Debbie. | |||||
Sarah’s work hours | 32,300.00 | ||||||
Hours of work available | 20,300.00 | ||||||
Trish is in High Demand | 45,000.00 | Trish is the third most productive hourly worker, so it should be done after Sarah. | |||||
Trish’s work hours | 9,900.00 | ||||||
Hours of work available | 10,400.00 | ||||||
Hours of direct labor per unit for Mike | 0.65 | ||||||
Number of Mike units | 16,000.00 | Mike’s contribution per hour is the lowest so Mike should be paid in the remaining time. | |||||
Contribution statement | Debbie | Trish | Sarah | Mike | Sewing Kit | Total | |
Contribution per unit ($) | 8.90 | 3.40 | 13.61 | 4.20 | 3.10 | See I | |
Nombre of units | 53,000.00 | 45,000.00 | 38,000.00 | 16,000.00 | 328,000.00 | See K | |
Contribution ($) | 471,700.00 | 153,000.00 | 517,180.00 | 67,200.00 | 1,016,800.00 | 2,225,880.00 | L= I*K |
So highest total contribution margin company can earn is $ 2,225,880. | |||||||
Answer 5- | |||||||
Maximum additional labor cost per an hour may be equal to extra contribution, which is the contribution per an hour for Mike. | |||||||
Since all other products can be produced by the same labor hours, additional labor hours will only be required for Mike. | |||||||
The maximum labor cost per hour is $ 6.46, which is Mike’s contribution per hour. | |||||||
So the highest additional labor cost to be $ 8 (original rate) + 6.46 ( contribution per hour from Mike) i.e. $ 14.46. | |||||||
Conclusion
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