Question

Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. Data concerning three of the company’s...

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 $ 370 $ 235
Variable cost per unit $ 170 $ 285 $ 145
Plastic injection molding machine processing
time required to produce one unit
10 minutes 11 minutes 15 minutes
Pounds of plastic pellets per unit 11 pounds 6 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?

Homework Answers

Answer #1

1.

Ski Guard Golf Guard Fishing Guard
Selling price per unit $ 250 370 235
Less: Variable cost per unit 170 285 145
Contribution margin per unit $ 80 85 90
Processing time per unit (minutes) 10 11 15
Contribution margin per minute $ 8.00 7.73 6.00

2. Ski Guard offers the most profitable use of the plastic injection molding machine.

3.

Ski Guard Golf Guard Fishing Guard
Contribution margin per unit $ 80 85 90
Pounds of plastic pellets per unit 11 6 13
Contribution margin per pound $ 7.27 14.17 6.92

4. Golf Guard offers the most profitable use of the plastic pellets.

5. Fishing Guard has the largest contribution margin per unit.

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