Question:
Theory of constraints, contribution margin, sensitivity analysis. Low Tech Toys (LTT) produces dolls in two processes: molding and assembly. LTT is currently producing two models: Chatty Chelsey and Talking Tanya. Production in the Molding Department is limited by the amount of materials available. Production in the Assembly Department is limited by the amount of trained labor available. The only variable costs are materials in the Molding Department and labor in the Assembly Department. Following are the requirements and limitations by doll model and department.
Molding Materials
1. If LIT sold only one type of doll, which doll would it produce? How many of these dolls would it make and sell?
2. If LIT sells two Chatty Chelseys for each Talking Tanya, how many dolls of each type would it produce and sell? What would be the total contribution margin?
3. If LIT sells two Chatty Chelseys for each Talking Tanya, how much would production and contribution margin increase if the Molding Department could buy 10 more pounds of materials for $10 per pound?
4. If LTT sells two Chatty Chelseys for each Talking Tanya, how much would production and contribution margin increase if the Assembly Department could get 10 more labor hours at $12 perhour?