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	$	260		$	270		$	305
Variable cost per unit	$	130		$	130		$	180
Plastic injection molding machine processing time required to produce one unit	4 minutes			6 minutes			9 minutes
Pounds of plastic pellets per unit	9 pounds			16 pounds			7 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		Ski Guard	Gold Guard	Fishing Guard
	Selling price per unit	$260	$270	$305
	Variable cost per unit	$130	$130	$180
	Contribution margin per unit	$130	$140	$125
	Plastic injection molding machine processing time required to produce one unit	4	6	9
	Contribution margin per unit of the constrained resource	$32.50	$23.33	$13.89
2	Ski Guard
3		Ski Guard	Gold Guard	Fishing Guard
	Selling price per unit	$260	$270	$305
	Variable cost per unit	$130	$130	$180
	Contribution margin per unit	$130	$140	$125
	Pounds of plastic pellets required to produce one unit	9	16	7
	Contribution margin per unit of the constrained resource	$14.44	$8.75	$17.86
4	Fishing Guard
5	Gold Guard