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 per 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 94,310 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)?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Need help solving question 5
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 | 63,000 | $ 21.00 | $ 5.60 | $ 4.20 |
| Trish | 55,000 | $ 7.50 | $ 2.40 | $ 1.44 |
| Sarah | 48,000 | $ 36.50 | $ 8.39 | $ 7.80 |
| Mike | 48,000 | $ 16.00 | $ 3.30 | $ 5.40 |
| Sewing kit | 338,000 | $ 9.30 | $ 4.50 | $ 0.84 |
The following additional information is available:
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The company’s plant has a capacity of 94,310 direct labor-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.
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The direct labor rate of $12 per hour is expected to remain unchanged during the coming year.
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Fixed
manufacturing costs total $650,000 per year. Variable overhead costs are $4 per direct labor-hour. -
All of the company’s nonmanufacturing costs are fixed.
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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 per 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 94,310 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)?
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5. Assuming that the company has made optimal use of its 94,310 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)?
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