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.

Selling price per unit

Ski Guard $260

Golf Guard $350

Fishing Guard $245

Variable cost per unit

Ski Guard $100

Golf Guard $150

Fishing Guard $105

Plastic injection molding machine processing time required to produce one unit 6 minutes 12 minutes 11 minutes

Pounds of plastic pellets per unit 15 pounds 15 pounds 12 pounds  

1a. The total time available on the plastic injection molding machine is the constraint in the production process. What is the contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard?

1b. Which product would be the most profitable use of this constraint? Ski Guard Fishing Guard Golf Guard

1c. Which product would be the least profitable use of this constraint? Ski Guard Fishing Guard Golf Guard

2a. A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of plastic pellets. What is the contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard?

2b. Which product would be the most profitable use of this constraint? Golf Guard Ski Guard Fishing Guard

2c. Which product would be the least profitable use of this constraint? Golf Guard Ski Guard Fishing Guard

3. Which product has the largest unit contribution margin? Golf Guard Fishing Guard Ski Guard

Answer 1

Requirement-1(a)

	Ski Guard	Golf Guard	Fishing Guard
Contribution margin per minute of the constrained resourse	$26.67 per minute	$16.67 per minute	$12.73 per minute

	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$260	$350	$245
Variable cost per unit	$100	$150	$105
Contribution margin per unit	$160	$200	$140
/ Constraint	6 minutes	12 minutes	11 minutes
Total	$26.67 per minute	$16.67 per minute	$12.73 per minute

Requirement-1(b)

“Ski Guard” product would be the most profitable use of the plastic injection molding machine”

Requirement-1(c)

“Fishing Guard “ product would be the least profitable use of the plastic injection molding machine”

Requirement-2(a)

	Ski Guard	Golf Guard	Fishing Guard
Contribution margin per pound of the constrained resourse	$10.67 per pounds	$13.33 per pounds	$11.67 per pounds

	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$260	$350	$245
Variable cost per unit	$100	$150	$105
Contribution margin per unit	$160	$200	$140
/ Constraint	15 pounds	15 pounds	12 pounds
Total	$10.67 per pounds	$13.33 per pounds	$11.67 per pounds

Requirement-2(b)

“Golf Guard” product would be the most profitable use of this constraint

Requirement-2(c)

“Ski Guard” product would be the least profitable use of this constraint

Requirement-3

“Golf Guard “ product has the largest contribution margin of $200 per unit