The Walton Toy Company manufactures a line of dolls and a sewingkit. Demand for the company’s products is increasing, andmanagement requests assistance from you in determining aneconomical sales and production mix for the coming year. Thecompany has provided the following data:
| Product | Demand
Next year
(units) | Selling
Price
per Unit | Direct
Materials | Direct
Labor |
| Debbie | 62,000 | $ | 20.50 | $ | 5.50 | $ | 3.60 |
| Trish | 54,000 | $ | 7.00 | $ | 2.30 | $ | 1.32 |
| Sarah | 47,000 | $ | 34.00 | $ | 8.24 | $ | 7.20 |
| Mike | 56,000 | $ | 15.00 | $ | 3.20 | $ | 4.80 |
| Sewing kit | 337,000 | $ | 9.20 | $ | 4.40 | $ | 0.72 |
|
The following additional information isavailable:
The company’s plant has a capacity of 84,160 direct labor-hoursper year on a single-shift basis. The company’s present employeesand equipment can produce all five products.
The direct labor rate of $12 per hour is expected to remainunchanged during the coming year.
Fixed manufacturing costs total $640,000 per year. Variableoverhead costs are $3 per direct labor-hour.
All of the company’s nonmanufacturing costs are fixed.
The company’s finished goods inventory is negligible and can beignored.
Required:
1. How many direct labor hours are used to manufacture one unitof each of the company’s five products?
2. How much variable overhead cost is incurred to manufactureone unit of each of the company’s five products?
3. What is the contribution margin per direct labor-hour foreach of the company’s five products?
4. Assuming that direct labor-hours is the company’sconstraining resource, what is the highest total contributionmargin that the company can earn if it makes optimal use of itsconstrained resource?
5. Assuming that the company has made optimal use of its 84,160direct labor-hours, what is the highest direct labor rate per hourthat Walton Toy Company would be willing to pay for additionalcapacity (that is, for added direct labor time)?
