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		$	320		$	275
Variable cost per unit	$	80		$	160		$	140
Plastic injection molding machine processing time required to produce one unit	12 minutes			8 minutes			5 minutes
Pounds of plastic pellets per unit	14 pounds			15 pounds			13 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) Calculate contribution margin per minute

	Ski guard	Gold guard	Fishing guard
Selling price	230	320	275
Variable cost per unit	80	160	140
Contribution margin per unit	150	160	135
Minute per unit	12	8	5
Contribution margin per minute	12.50	20	27

2) Fishing guard

3) Calculate contribution margin per pound

	Ski guard	Gold guard	Fishing guard
Selling price	230	320	275
Variable cost per unit	80	160	140
Contribution margin per unit	150	160	135
pound per unit	14	15	13
Contribution margin per pound	10.71	10.67	1038

4) Golf guard

5) Largest contribution margin per unit = Golf guard