Question

Exercise 12-5 Volume Trade-Off Decisions [LO12-5]

Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. Data concerning three of the company’s most popular models appear below.

	Ski Guard			Golf Guard			Fishing Guard
Selling price per unit	$	310		$	390		$	215
Variable cost per unit	$	70		$	160		$	95
Plastic injection molding machine processing time required to produce one unit	11 minutes			11 minutes			2 minutes
Pounds of plastic pellets per unit	14 pounds			7 pounds			15 pounds

Required:

1. If we assume that the total time available on the plastic injection molding machine is the constraint in the production process, how much contribution margin per minute of the constrained resource is earned by each product?

2. Which product offers the most profitable use of the plastic injection molding machine?

3. If we assume that a severe shortage of plastic pellets has required the company to cut back its production so much that its new constraint has become the total available pounds of plastic pellets, how much contribution margin per pound of the constrained resource is earned by each product?

4. Which product offers the most profitable use of the plastic pellets?

5. Which product has the largest contribution margin per unit?

Answer 1

1) Contribution margin per minute

	Ski guard	Golf guard	Fishing guard
Selling price	310	390	215
Variable cost	70	160	95
Contribution margin	240	230	120
Minute per unit	11	11	2
Contribution margin per minute	21.82	20.91	60

2) Fishing guard

3) Contribution margin per pound

	Ski guard	Golf guard	Fishing guard
Selling price	310	390	215
Variable cost	70	160	95
Contribution margin	240	230	120
Pound per unit	14	7	15
Contribution margin per pound	17.14	32.86	8

4) Golf guard

5) Ski guard