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	$	250		$	320		$	350
Variable cost per unit	$	110		$	210		$	155
Plastic injection molding machine processing time required to produce one unit	14 minutes			13 minutes			20 minutes
Pounds of plastic pellets per unit	9 pounds			10 pounds			14 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)

Calculation of contribution margin per minute on machine processing time

(Amount in $)

Particulars	Ski Guard	Gold Guard	Fishing Guard
Selling price per unit	250	320	350
Less: Variable cost per unit	110	210	155
Contribution margin per unit    (a)	140	110	195
Machine processing time per unit    (b)	14 Minutes	13 Minutes	20 Minutes
Contribution margin per machine minute   (a/b)	10.00	8.46	9.75

Answer 2)

(Amount in $)

Particulars	Ski Guard	Gold Guard	Fishing Guard
Selling price per unit	250	320	350
Less: Variable cost per unit	110	210	155
Contribution margin per unit    (a)	140	110	195
Machine processing time per unit    (b)	14 Minutes	13 Minutes	20 Minutes
Contribution margin per machine minute   (a/b)	10.00	8.46	9.75

From the perusal of the above statement, it is evident the Ski Guard offers the most profitable use of injection holding machine as contribution per machine hour is highest (i.e. $ 10.00 per minute).

Answer 3)

Calculation of contribution margin per pound of material consumed

(Amount in $)

Particulars	Ski Guard	Gold Guard	Fishing Guard
Selling price per unit	250	320	350
Less: Variable cost per unit	110	210	155
Contribution margin per unit    (a)	140	110	195
Material consumed per unit (in pounds)    (b)	9 Pounds	10 Pounds	14 Pounds
Contribution margin per pound of material (a/b)	15.56	11.00	13.93

Answer 4)

Calculation of contribution margin per pound of material consumed

(Amount in $)

Particulars	Ski Guard	Gold Guard	Fishing Guard
Selling price per unit	250	320	350
Less: Variable cost per unit	110	210	155
Contribution margin per unit    (a)	140	110	195
Material consumed per unit (in pounds)    (b)	9 Pounds	10 Pounds	14 Pounds
Contribution margin per pound of material (a/b)	15.56	11.00	13.93

From the perusal of the above statement, it is evident the Ski Guard offers the most profitable use of plastic pellets as contribution per pound is highest (i.e. $ 15.56 per pound).

Answer 5)

Calculation of contribution margin per unit

(Amount in $)

Particulars	Ski Guard	Gold Guard	Fishing Guard
Selling price per unit	250	320	350
Less: Variable cost per unit	110	210	155
Contribution margin per unit    (a)	140	110	195

From the perusal of above table it is evident that Fishing Guard offers largest contribution margin per unit (i.e. $ 195 per unit)