Question

Exercise 12-5 Volume Trade-Off Decisions [LO12-5]

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	$	260		$	350		$	245
Variable cost per unit	$	100		$	150		$	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			20 pounds			12 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?

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?

	Ski Guard	Golf Guard	Fishing Guard
Contribution margin per min of constrained resource	____Per min	____Per Min	____Per min

2.

Which product offers the most profitable use of the plastic injection molding machine?

SKI/GOLF/FISHING?

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? (Round your final answers to 2 decimal places.)

	Ski Guard	Golf Guard	Fishing Guard
Contribution margin per min of constrained resource	____Per min	____Per Min	____Per min

4. Which product offers the most profitable use of the plastic pellets?

SKI/GOLF/FISHING

5.

Which product has the largest contribution margin per unit?

SKI/GOLF/FISHING

Answer 1

1
	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	260	350	245
Less: Variable cost per unit	100	150	105
Contribution margin per unit	160	200	140
Plastic injection molding machine processing time per unit	6	12	11
Contribution margin per minute of the constrained resource	26.67	16.67	12.73
2
Ski Guard offers the most profitable use of the plastic injection molding machine
3
	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	260	350	245
Less: Variable cost per unit	100	150	105
Contribution margin per unit	160	200	140
Pounds of plastic pellets per unit	15	20	12
Contribution margin per pound of the constrained resource	10.67	10.00	11.67
4
Fishing Guard offers the most profitable use of the plastic pellets
5
Golf Guard has the largest contribution margin per unit