Soft and Cuddly Friends (SCF) produces soft dolls. Demand for the dolls is increasing, and management wants you to identify an economical sales and production mix for the coming year. The following information is available: Softy Friendly Goody Besty Lovey Demand (units) 80,000 66,800 56,000 64,000 114,000 Price per unit $ 37.00 $ 30.00 $ 27.00 $ 19.00 $ 23.00 Variable costs: Direct materials 3.70 2.90 5.50 4.10 2.50 Direct labour 6.00 3.75 10.50 7.50 3.00 The following additional information is available: a. The company’s plant has a capacity of 120,000 direct labour-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products. b. The direct labour rate is $15 per hour; this rate is expected to remain unchanged during the coming year. c. Fixed manufacturing costs amount to $780,000 per year. Variable overhead costs are $5 per direct labour-hour. d. All of the company’s sales and administrative costs are fixed. Required: 1. How many total direct labour-hours will be required to produce the units estimated to be sold during the coming year? Show your computations. (Round your answers to 2 decimal places.) 2. Keeping in mind the direct labour-hour capacity, what should be the company’s product mix for the upcoming year? Prepare a schedule in support of your recommendation. (Round "Per Unit" to 2 decimal places.) 3. What is the highest price, in terms of a rate per hour, that SCF would be willing to pay for additional capacity (i.e., for added direct labour time)?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 19E

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Soft and Cuddly Friends (SCF) produces soft dolls. Demand for the dolls is increasing, and management wants you to identify an economical sales and production mix for the coming year. The following information is available:

		Softy		Friendly		Goody		Besty		Lovey
Demand (units)		80,000		66,800		56,000		64,000		114,000
Price per unit	$	37.00	$	30.00	$	27.00	$	19.00	$	23.00
Variable costs:
Direct materials		3.70		2.90		5.50		4.10		2.50
Direct labour		6.00		3.75		10.50		7.50		3.00

The following additional information is available:

a.	The company’s plant has a capacity of 120,000 direct labour-hours per year on a single-shift basis. The company’s present employees and equipment can produce all five products.
b.	The direct labour rate is $15 per hour; this rate is expected to remain unchanged during the coming year.
c.	Fixed manufacturing costs amount to $780,000 per year. Variable overhead costs are $5 per direct labour-hour.
d.	All of the company’s sales and administrative costs are fixed.

Required:

1.	How many total direct labour-hours will be required to produce the units estimated to be sold during the coming year? Show your computations. (Round your answers to 2 decimal places.)

2.	Keeping in mind the direct labour-hour capacity, what should be the company’s product mix for the upcoming year? Prepare a schedule in support of your recommendation. (Round "Per Unit" to 2 decimal places.)

3.	What is the highest price, in terms of a rate per hour, that SCF would be willing to pay for additional capacity (i.e., for added direct labour time)?

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