The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company’s products 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 50,000 13.50 4.30 3.20 Trish 42,000 5.50 1.10 2.00 Sarah 35,000 21.00 6.44 5.60 Mike 40,000 10.00 2.00 4.00 Sewing kit 325,000 8.00 3.20 1.60 The following additional information is available: The company’s plant has a capacity of 130,000 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products. The direct labor rate of $8 per hour is expected to remain unchanged during the coming year. Fixed manufacturing costs total $520,000 per year. Variable overhead costs are $2 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. Required: 1. Determine the contribution margin per direct labor-hour expended on each product. 2. Prepare a schedule showing the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year. 3. Examine the data you have computed in (1) and (2) above. How would you allocated the 130,000 direct-labor hour of capacity to Walton Toy Company's various product? 4. What is the highest price, in terns if a rate per hour, that Walton Toy Company would be willing to pay for additional capacity ?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The Walton Toy Company manufactures a line of dolls and a sewing kit. Demand for the company’s products 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	50,000	13.50	4.30	3.20
Trish	42,000	5.50	1.10	2.00
Sarah	35,000	21.00	6.44	5.60
Mike	40,000	10.00	2.00	4.00
Sewing kit	325,000	8.00	3.20	1.60

The following additional information is available:

The company’s plant has a capacity of 130,000 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.
The direct labor rate of $8 per hour is expected to remain unchanged during the coming year.
Fixed manufacturing costs total $520,000 per year. Variable overhead costs are $2 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.

Required:

1. Determine the contribution margin per direct labor-hour expended on each product.

2. Prepare a schedule showing the total direct labor-hours that will be required to produce the units estimated to be sold during the coming year.

3. Examine the data you have computed in (1) and (2) above. How would you allocated the 130,000 direct-labor hour of capacity to Walton Toy Company's various product?

4. What is the highest price, in terns if a rate per hour, that Walton Toy Company would be willing to pay for additional capacity ?

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