question: What is the contribution margin per direct labor-hour for each of the company’s five products? Assuming direct labor-hours is the company’s constraining resource, what is the highest total contribution margin the company can earn next year if it makes optimal use of its constrained resource? Assuming next year the company makes optimal use of its 164,990 direct labor-hours, what is the highest direct labor rate per hour Walton Toy Company should be willing to pay for additional capacity (that is, for added direct labor time)? The Walton Toy Company manufactures four dolls and a sewing kit. It provided the following data for next year: Product Demand Next year (units) Selling Price per Unit Direct Materials Direct Labor Debbie 75,000 $ 28.00 $ 5.20 $ 4.80 Trish 67,000 $ 5.70 $ 2.10 $ 1.36 Sarah 60,000 $ 33.50 $ 10.19 $ 7.20 Mike 36,000 $ 18.00 $ 4.50 $ 5.60 Sewing kit 350,000 $ 10.50 $ 5.70 $ 0.96 The following additional information is available: The company’s plant has a capacity of 164,990 direct labor-hours per year on a single-shift basis. Each employee and piece of equipment are capable of making all five products. Next year’s direct labor pay rate will be $8 per hour. Fixed manufacturing costs total $635,000 per year. Variable overhead costs are $4 per direct labor-hour. All of the company’s nonmanufacturing costs are fixed. The company’s finished goods inventory is negligible and can be ignored.

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 4QE: Suppose you are analyzing a firm that is successfully executing a strategy that differentiates its...

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What is the contribution margin per direct labor-hour for each of the company’s five products?
Assuming direct labor-hours is the company’s constraining resource, what is the highest total contribution margin the company can earn next year if it makes optimal use of its constrained resource?
Assuming next year the company makes optimal use of its 164,990 direct labor-hours, what is the highest direct labor rate per hour Walton Toy Company should be willing to pay for additional capacity (that is, for added direct labor time)?

The Walton Toy Company manufactures four dolls and a sewing kit. It provided the following data for next year:

Product	Demand Next year (units)	Selling Price per Unit	Direct Materials	Direct Labor
Debbie	75,000	$ 28.00	$ 5.20	$ 4.80
Trish	67,000	$ 5.70	$ 2.10	$ 1.36
Sarah	60,000	$ 33.50	$ 10.19	$ 7.20
Mike	36,000	$ 18.00	$ 4.50	$ 5.60
Sewing kit	350,000	$ 10.50	$ 5.70	$ 0.96

The following additional information is available:

The company’s plant has a capacity of 164,990 direct labor-hours per year on a single-shift basis. Each employee and piece of equipment are capable of making all five products.
Next year’s direct labor pay rate will be $8 per hour.
Fixed manufacturing costs total $635,000 per year. Variable overhead costs are $4 per direct labor-hour.
All of the company’s nonmanufacturing costs are fixed.
The company’s finished goods inventory is negligible and can be ignored.

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