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	$	290		$	190		$	215
Variable cost per unit	$	185		$	90		$	90
Plastic injection molding machine processing time required to produce one unit	12 minutes			6 minutes			8 minutes
Pounds of plastic pellets per unit	10 pounds			13 pounds			9 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)	Statement of contribution margin per minute of Plastic injection molding machine processing
	Particulars	Ski Guard	Golf Guard	Fishing Guard
	Selling price per unit                                                     (A)	$                  290	$                     190	$                  215
	Variable cost per unit                                                    (B)	$                  185	$                       90	$                    90
	Contribution per unit                                            (A-B) = (C)	$                  105	$                     100	$                  125
	Plastic injection molding machine processing time required to produce one unit                                     (D)	12 minutes	6 minutes	8 minutes
	Contribution per minute                                            (C/D)	$                8.75	$                 16.67	$              15.63
2)	Statement of ranking for finding the most profitable use of the plastic injection molding machine
	Particulars	Ski Guard	Golf Guard	Fishing Guard
	Contribution per minute	$                8.75	$                 16.67	$              15.63
	Ranking as per most profitable use of the plastic injection molding machine	IIIrd	Ist	Iind
	Therefore, Golf Guard product offers the most profitable use of the plastic injection molding machine
3)	Statement of contribution margin per pounds of Plastic Pellets
	Particulars	Ski Guard	Golf Guard	Fishing Guard
	Selling price per unit                                                     (A)	$                  290	$                     190	$                  215
	Variable cost per unit                                                    (B)	$                  185	$                       90	$                    90
	Contribution per unit                                            (A-B) = (C)	$                  105	$                     100	$                  125
	Pounds of plastic pellets per unit                            (D)	10 pounds	13 pounds	9 pounds
	Contribution per pounds of plastic pellets       (C/D)	$              10.50	$                   7.69	$              13.89
4)	Statement of ranking for finding the most profitable use of the plastic pellets
	Particulars	Ski Guard	Golf Guard	Fishing Guard
	Contribution per pounds of plastic pellets	$              10.50	$                   7.69	$              13.89
	Ranking as per most profitable use of the plastic pellets	Iind	IIIrd	Ist
	Therefore, Fishing Guard product offers the most profitable use of the plastic pellets
5)	Fishing Guard product offers the largest contribution margin per unit amounting to $ 125.
	Statement of contribution margin per unit
	Particulars	Ski Guard	Golf Guard	Fishing Guard
	Selling price per unit                                                     (A)	$                  290	$                     190	$                  215
	Variable cost per unit                                                    (B)	$                  185	$                       90	$                    90
	Contribution per unit                                            (A-B) = (C)	$                  105	$                     100	$                  125