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

Answer-

1-

Particulars	Ski guard	Golf guard	Fishing guard
Selling price per unit	$230	$320	$275
Less:-Variable cost per unit	$80	$160	$140
Contribution margin per unit	$150	$160	$135
/ Plastic injection molding machine processing time required to produce one unit	12 minutes	8 minutes	5 minutes
Contribution margin per unit of constrained resource	$12.5	$20	$27

2- Fishing guard is most profitable use of constraint as if has highest contributin margin per unit.

3

Particulars	Ski guard	Golf guard	Fishing guard
Selling price per unit	$230	$320	$275
Variable cost per unit	$80	$160	$140
Contribution margin per unit	$150	$160	$135
Pounds of plastic pellets per unit	14 pounds	15 pounds	13 pounds
Contribution margin per unit of constrained resource	$10.71	$10.67	$10.38

4- Ski guard is most profitable use of constraint as it has the highest contribution margin per pound.

5. Golf guard is largest unit of contribution margin.