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	$	290		$	190		$	215
Variable cost per unit	$	185		$	90		$	90
Plastic injection molding machine processing time required to produce one unit	12 minutes			6 minutes			8 minutes
Pounds of plastic pellets per unit	10 pounds			13 pounds			9 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	Golf	fishing
				Guard	Gurard	Guard
	Selling price per unit			290	190	215
	Variable cost per unit			185	90	90
	contribution margin			105	100	125
	machine processing min			12	6	8
	Contribution margin per min			8.75	16.67	15.63
2)	Golf Guard
3)				ski	Golf	fishing
				Guard	Gurard	Guard
	Selling price per unit			290	190	215
	Variable cost per unit			185	90	90
	contribution margin			105	100	125
	pounds per unit			10	13	9
	Contribution margin per pound			10.50	7.69	13.89
4)	Fishing Guard
5)	Fishing gurard