Question

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 $ 230 $ 310 $ 245 Variable cost per unit $ 160 $ 190 $ 115 Plastic injection molding machine processing time required to produce one unit 11 minutes 9 minutes 10 minutes Pounds of plastic pellets per unit 7 pounds 13 pounds 14 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
Sale price	230	310	245
Variable cost	160	190	115
Contribution margin per unit	70	120	130
Minute per unit	11	9	10
Contribution margin per minute	6.36	13.33	13

2) Golf guard

3) Contribution margin per Pounds

	Ski guard	Golf guard	Fishing guard
Sale price	230	310	245
Variable cost	160	190	115
Contribution margin per unit	70	120	130
Pound per unit	7	13	14
Contribution margin per pound	10	9.23	9.29

4) Ski guard

5) Fishing guard