Question

Exercise 11-5 Volume Trade-Off Decisions [LO11-5]

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	$	240		$	330		$	285
Variable cost per unit	$	120		$	180		$	130
Plastic injection molding machine processing time required to produce one unit	11 minutes			8 minutes			15 minutes
Pounds of plastic pellets per unit	9 pounds			6 pounds			15 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	Golf Guard	Fishing Guard
Selling price per unit	240	330	285
Less: Variable cost per unit	120	180	130
Contribution margin per unit	120	150	155
Plastic injection molding machine processing time per unit	11	8	15
Contribution margin per minute of the constrained resource	10.91	18.75	10.33
2
Golf Guard offers the most profitable use of the plastic injection molding machine
3
	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	240	330	285
Less: Variable cost per unit	120	180	130
Contribution margin per unit	120	150	155
Pounds of plastic pellets per unit	9	6	15
Contribution margin per minute of the constrained resource	13.33	25.00	10.33
4
Golf Guard offers the most profitable use of the plastic pellets
5
Fishing Guard has the largest contribution margin per unit