Question

Demand for Stuffin’ Such stuffed animal shells and stuffing/finishing kits manufactured by RoseMarie Limited is increasing, and management requests assistance from you in determining the best 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 8,500 direct labour-hours per year on a single-shift basis. The company’s current employees and equipment can produce all five products.
b. The direct labour rate of $10.00 per hour is expected to remain unchanged during the coming year.
c. Fixed costs total $100,000 per year. Variable overhead costs are $2.00 per direct labour-hour.
d. All of the company’s non-manufacturing costs are fixed.
e. The company’s finished goods inventory is negligible and can be ignored.
Required:
1. Determine the contribution margin per direct labour-hour expended on each product (the profitability index).
2. Prepare a schedule showing the total direct labour-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 allocate the 8,500 direct labour-hours of capacity to the various products?
4. What is the highest price, in terms of a rate per hour, that Stuffin’ Such should be willing to pay for additional capacity (that is, for added direct labour time)?
5. Identify ways in which the company might be able to obtain additional production capacity in the short run so that it would not have to leave some demand for its products unsatisfied.


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  • CreatedJuly 08, 2015
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