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 $ 250 $ 370 $ 235 Variable cost per unit $ 170 $ 285 $ 145 Plastic injection molding machine processing time required to produce one unit 10 minutes 11 minutes 15 minutes Pounds of plastic pellets per unit 11 pounds 6 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

1
	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	250	370	235
Less: Variable cost per unit	170	285	145
Contribution margin per unit	80	85	90
Plastic injection molding machine processing time per unit	10	11	15
Contribution margin per minute of the constrained resource	8.00	7.73	6.00
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	250	370	235
Less: Variable cost per unit	170	285	145
Contribution margin per unit	80	85	90
Pounds of plastic pellets per unit	11	6	13
Contribution margin per pound of the constrained resource	7.27	14.17	6.92
4
Golf Guard offers the most profitable use of the plastic pellets
5
Fishing Guard has the largest contribution margin per unit