The Montrose Toy Company manufactures a line of dolls and a doll dress sewing ki
ID: 2567913 • Letter: T
Question
The Montrose 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 the best 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
Marcy 31,000 $35.00 $2.80 $5.40
Tina 49,000 $20.00 $2.70 $2.40
Cari 47,000 $25.00 $3.80 $9.60
Lenny 38,000 $18.00 $3.50 $6.00
Sewing kit 540,000 $11.00 $1.40 $1.20
The following additional information is available:
a.
The company’s plant has a capacity of 121,750 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 $12.00 per hour is expected to remain unchanged during the coming year.
c. Fixed costs total $316,000 per year. Variable overhead costs are $2.00 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.
Determine the contribution margin per direct labor-hour expended on each product. (Do not round intermediate calculations. Round Direct Labour hours per unit to 2 decimal places.)
Product Contribution Margin per DLH
Marcy
Tina
Cari
Lenny
Sewing Kit
2.
Calculate 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.)
Product Contribution Margin per DLH
Marcy
Tina
Cari
Lenny
Sewing Kit
Total DLHs required
4.
What is the highest price, in terms of a rate per hour, that Montrose Toy Company should be willing to pay for additional capacity (that is, for added direct labor time)? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Highest price per hour
Explanation / Answer
Marcy Tina Cari Lenny Sewing kit Demand 31000 49000 47000 38000 540000 Selling Price $35 20 25 18 11 Direct Material 2.8 2.7 3.8 3.5 1.4 Direct Labor D 5.4 2.4 9.6 6 1.2 Variable overhead (L*2) 0.9 0.4 1.6 1 0.2 Total Variable expenses 9.1 5.5 15 10.5 2.8 Contribution Margin per unit $25.90 $14.50 $10.00 $7.50 $8.20 Direct labor hours required L=D/12 0.45 0.2 0.8 0.5 0.1 ans 1 Contribution margin per DLH $57.56 $72.50 $12.50 $15.00 $82.00 working Direct labor hours required per unit L=D/12 0.45 0.2 0.8 0.5 0.1 Variable overhead (L*2) 0.9 0.4 1.6 1 0.2 ans 2 Marcy Tina Cari Lenny Sewing kit Demand 31000 49000 47000 38000 540000 Direct labor hours required per unit L=D/12 0.45 0.2 0.8 0.5 0.1 ans 2 Total direct labor hours required 13950 9800 37600 19000 54000 Contribution margin per hour $57.56 $72.50 $12.50 $15.00 $82.00 First sweing machine,than Tina, than Marcy, Lenny and lastly Cari will be produced Total No. of avialable hours 121750 No.of hours required 13950 9800 25000 19000 54000 ans 4 Highest price that can be paid is for Cari as for other products the company has capacity So maximum it could pay is $12.5 the contribution margin per DLH