Volume Trade-Off Decisions. The Walton Toy Company manufactures a line of dolls and a sewing kit

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:

The following additional information is available:

a. The company’s plant has a capacity of 130,000 direct labor-hours per year on a singleshift

basis. The company’s present employees and equipment can produce all five

products.

b. The direct labor rate of $16 per hour is expected to remain unchanged during the coming

year.

c. Fixed costs total $520,000 per year. Variable overhead costs are $2 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. How many direct labor hours are used to manufacture one unit of each of the company’s five

products?

2. How much variable overhead cost is incurred to manufacture one unit of each of the company’s

five products?

3. What is the contribution margin perP

direct labor-hour for each of the company’s five products?

4. Assuming that direct labor-hours is the company’s constraining resource, what is the highest

total contribution margin that the company can earn if it makes optimal use of its constrained

resource?

5. Assuming that the company has made optimal use of its 130,000 direct labor-hours, what is

the highest direct labor rate per hour that Walton Toy Company would be willing to pay for

additional capacity (that is, for added direct labor time)?

6. Identify changes that the company could make to enable it to satisfy the customers’ demand

for all of its products.