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 $ 210 $ 310 $ 265
Variable cost per unit $ 70 $ 150 $ 130
Plastic injection molding machine processing
time required to produce one unit
8 minutes 10 minutes 10 minutes
Pounds of plastic pellets per unit 7 pounds 16 pounds 6 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 $210 $310 $265
Variable cost per unit 70 150 130
Contribution margin per unit 140 160 135
Plastic injection molding machine processing time required to produce one unit 8 mins 10 mins 10 mins
Contribution margin per minute of processing time $17.5 $16 $13.5

2.

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

3.

Ski Guard Golf Guard Fishing Guard
Selling price per unit $210 $310 $265
Variable cost per unit 70 150 130
Contribution margin per unit 140 160 135
Pounds of plastic pellets per unit 7 pounds 16 pounds 6 pounds
Contribution margin per pound of plastic pellets $20 $10 $22.5

4.

Fishing Guard offers the most profitable use of plastic pellets.

5.

Golf Guard has the largest contribution margin per unit.

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