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	$	280		$	200		$	245
Variable cost per unit	$	90		$	160		$	115
Plastic injection molding machine processing time required to produce one unit	6 minutes			14 minutes			2 minutes
Pounds of plastic pellets per unit	12 pounds			10 pounds			8 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

Solution 1:

Computation of contribution margin per minute of molding machine processing time - Outdoor Luggage Inc.
Particulars	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$280.00	$200.00	$245.00
Variable cost per unit	$90.00	$160.00	$115.00
Contribution margin per unit	$190.00	$40.00	$130.00
Machine processing time per unit (in minutes)	6	14	2
Contribution per minute of machine processing time	$31.67	$2.86	$65.00

Solution 2:

Fishing Guard offers the most profitable use of the plastic injection molding machine because it has highest contribution margin per minute of Machine processing time.

Solution 3:

Computation of contribution margin per pound of Plastic Pellets - Outdoor Luggage Inc.
Particulars	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$280.00	$200.00	$245.00
Variable cost per unit	$90.00	$160.00	$115.00
Contribution margin per unit	$190.00	$40.00	$130.00
Plastic Pellet per unit (In Pounds)	12	10	8
Contribution per minute of machine processing time	$15.83	$4.00	$16.25

Solution 4:

Fishing Guard offers the most profitable use of the plastic pellets.

Solution 5:

Computation of contribution margin per unit - Outdoor Luggage Inc.
Particulars	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$280.00	$200.00	$245.00
Variable cost per unit	$90.00	$160.00	$115.00
Contribution margin per unit	$190.00	$40.00	$130.00

Ski Guard has the largest contribution margin per unit.