Problem 7-25 Utilization of a Constrained Resource [LO7-5, LO7-6] The Walton Toy
ID: 2433091 • Letter: P
Question
Problem 7-25 Utilization of a Constrained Resource [LO7-5, LO7-6] 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 folowing data: DemandSell Next year Price Direct Labor Direct Product (units) per Debbie Trish Sarah Mike Sewing kit 51,000 $15 50 S 6.00 $25.00 40,000 $11.00 aterials S4.40 $1.20 S6.59 S2.10 $3.30 S2.70 $1 20 $4.50 $3.30 $0.90 43,000 36,000 326,000 $ 8.10 The following additional information is available: a. The company's plant has a capacity of 118.450 direct labor-hours per year on a single-shift basis. The companys present employees and equipment can produce all five products. b. The direct labor rate of $6 per hour is expected to remain unchanged during the coming year c. Fixed costs total $530,000 per year. Variable overhead costs are $3 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 ignoredExplanation / Answer
Req 1: DEBBIE TRISH SARAH MIKE SEWING KIT Labour cost per unit 2.70 1.20 4.50 3.30 0.90 labour rate perr hour 6.00 6.00 6.00 6.00 6.00 labour horus per unit required 0.45 0.20 0.75 0.55 0.15 Req 2 DEBBIE TRISH SARAH MIKE SEWING KIT Labour cost per unit 2.70 1.20 4.50 3.30 0.90 labour rate perr hour 6.00 6.00 6.00 6.00 6.00 labour horus per unit required 0.45 0.20 0.75 0.55 0.15 Variable OH rate per hour 3.00 3.00 3.00 3.00 3.00 variable cost per unit 1.35 0.60 2.25 1.65 0.45 Req 3: DEBBIE TRISH SARAH MIKE SEWING KIT Selling price 15.50 6.00 25.00 11.00 8.10 Less: variable cost Material 4.40 1.20 6.59 2.10 3.30 Labour 2.70 1.20 4.50 3.30 0.90 Overheads 1.35 0.60 2.25 1.65 0.45 Contribution margin per unt 7.05 3.00 11.66 3.95 3.45 Divide: Labour hrs 0.45 0.20 0.75 0.55 0.15 Contribution mamrgin per hour 15.67 15.00 15.55 7.18 23.00 Ranking II IV III V I Req 4: Total Hours available: 118450.00 Less: Distributed in order of ranking Sewing kit (326000*0.15) 48900 Debbie (51000*0.45) 22950 Sarah (36000*0.75)) 27000 Trish (43000*0.20) 8600 Hours available for Mike 11000 Contribution earned Hrs Contribution per hour Contributuon mrgin Debbie 22950 15.67 359626.5 Trish 8600 15 129000 Sarah 27000 15.55 419850 Mike 11000 7.18 78980 Sewing kit 48900 23 1124700 Total Contribution 2112157 Req 5: Additional hourrs will be used for production of Mike only. Therfore, the company is ready to pay only additional ccontribution margin per our of mike. Maximum prie per hour to be paid: Exiting rate 6 Add: Contribution margin per hour of Mike 7.18 Maximum prie per hour to be paid: 13.18