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 following data:


Product
Demand Next year (units)
Selling Price per Unit
Direct Materials
Direct Labor

Debbie
25,000
$
35
$
3.70
$
3.60

Trish
33,000
$
23
$
1.80
$
2.40

Sarah
37,000
$
22
$
4.10
$
7.20

Mike
51,000
$
20
$
2.20
$
6.60

Sewing kit
510,000
$
13
$
1.80
$
2.40


--------------------------------------------------------------------------------

The following additional information is available:


a.
The company's plant has a capacity of 152,550 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 per hour is expected to remain unchanged during the coming year.

c.
Fixed costs total $306,000 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 ignored.


Requirement 1:

Determine the contribution margin per direct labor-hour expended on each product. Just give me an idea how to do it. PLEASE I AM VERY :confused::confused::confused:

I am sure you know that contribution margin is sales minus all variable costs. To calculate contribution per labor hour you need first to calculate the labor hour required for each product by dividing the labor cost per unit by the labor rate per hour. Now you can divide the contribution per unit by the labor hour required per unit of each product.

Quote:

---

Originally Posted by rehmanvohra

I am sure you know that contribution margin is sales minus all variable costs. To calculate contribution per labor hour you need first to calculate the labor hour required for each product by dividing the labor cost per unit by the labor rate per hour. Now you can divide the contribution per unit by the labor hour required per unit of each product.

---

I am still confused, Yes I subtract the Direct material: $3.70, Direct labor: $3.60, and Variable overhead: $3 from selling price per unit:$35. And I left with 24.7. As you said I divided $3.60 with $12 which is the rate of labor hour. I got 0.3, then I further divided 24.7 with 0.3 = 82.33 but my answer is still wrong. Can you explain by example. Thanks for your help:confused::confused:

You are on the right track. Please repeat the same process for all the products. Having done that you need to rank the products according to their respective contribution per labor hour. The highest will be produced first followed by the others in their rank order. Complete this process for further instructions.

[:confused:

But I don't know what mistake I am making for which I am still getting wrong answer?

I think the mistake lies in calculating variable overheads.

Sales price $35
Variable costs
Direct Material 3.70
Direct Labor 3.60
Variable Overheads 0.90 (0.3 hrs x $3 per hour)
Total Variable costs 8.20
Contribution margin 26.80
Labor hour per unit 0.3
Contribution per labor hour 89.33

Can I ask you one more favor, How can we calculate the total labor hours which are required which are required to produce the estimated units next year. The total estimated units are 656,000 and I divided it by the total CM Per hour which is 253.52 which is 2,587,567 total hours, but this is not right answer and my sources don't give any detail about how to calculate the total labor hours. Will appreciete your help. Thanks:confused:

Have you prepared the priority list I had mentioned? The next step is as follows:

Total hours available 152,550
Hours required for production of 1st Rank product
Balance hours available for other products
Hours required for production of 2nd Rank product
Balance hours available for other products
Hours required for production of 3rd Rank product
... and so on until you reach the least number of hours available.
Calculate the units that can be produced for the next rank product by dividing the hours with the per unit labor hour required

I just do not understand how you got to the figure of 253.52. This is of no use. You have to calculate CM pr labor hour for each product. You are not required to add them up.

Thank you very much for your help, I figured it out

Quote:

---

Originally Posted by rehmanvohra

have you prepared the priority list i had mentioned? The next step is as follows:

Total hours available 152,550
hours required for production of 1st rank product
balance hours available for other products
hours required for production of 2nd rank product
balance hours available for other products
hours required for production of 3rd rank product
..... And so on until you reach the least number of hours available.
Calculate the units that can be produced for the next rank product by dividing the hours with the per unit labor hour required

i just do not understand how you got to the figure of 253.52. This is of no use. You have to calculate cm pr labor hour for each product. You are not required to add them up.

---

For the Question above I would like to know - What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?

Quote:

---

Originally Posted by CA

For the Question above I would like to know - What is the highest price, in terms of a rate per hour, that Walton Toy Company would be willing to pay for additional capacity (that is, for added direct labor time)?

---

I think your question appears to be out of place. If you have any specific problem please post your thread separately along with your own solution for guidance. The question deals with the limitation of the availability of labor and hence needs to maximize profits by utilization of the available resources.

Thanks a lot. This is very helpful..

Walter,