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	$250			$320			$235
Variable cost per unit		$110			$200			$135
Plastic injection moulding machine processing    time required per unit		13 min			11 min			5 min
Kgs of plastic pellets per unit		14 kg			7 kg			6 kg

Required:
1a. The total time available on the plastic injection moulding machine is the constraint in the production process. What is the contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard?

1b. Which product would be the most profitable use of this constraint?

• Fishing Guard

• Ski Guard

• Golf Guard

1c. Which product would be the least profitable use of this constraint?

• Fishing Guard

• Ski Guard

• Golf Guard

2a. A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection moulding machine is no longer the bottleneck. Instead, the constraint is the total available kilograms of plastic pellets. What is the contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard?

2b. Which product would be the most profitable use of this constraint?

• Golf Guard

• Ski Guard

• Fishing Guard

2c. Which product would be the least profitable use of this constraint?

• Golf Guard

• Ski Guard

• Fishing Guard

3. Which product has the largest unit contribution margin?

• Ski Guard

• Fishing Guard

• Golf Guard

Answer 1

1a) Contribution margin per minute

	Ski guard	Golf guard	Fishing guard
Selling price	250	320	235
Variable cost	110	200	135
Contribution margin	140	120	100
Minute per unit	13	11	5
Contribution margin per minute	10.77	10.91	20

1b) Fishing guard

1c) Ski guard

2a) Contribution margin per kg

	Ski guard	Golf guard	Fishing guard
Selling price	250	320	235
Variable cost	110	200	135
Contribution margin	140	120	100
Kg per unit	14	7	6
Contribution margin per kg	10	17.14	16.67

2b) Golf guard

2c) Ski guard

3) Ski guard