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 $ 210 $ 310 $ 265 Variable cost per unit $ 70 $ 150 $ 130 Plastic injection molding machine processing time required to produce one unit 8 minutes 10 minutes 10 minutes Pounds of plastic pellets per unit 7 pounds 16 pounds 6 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) calculation of contribution margin per minute of the constrained resource earned by each project (time based) :

particulars	ski guard	golf guard	fishing guard
selling price per unit	210	310	265
less : variable cost per unit	(70)	(150)	(130)
contribution margin per unit	140	160	135
molding machine time required for one unit	8	10	10
contribution margin per minute plastic injection molding machine time (working noe 1)	17.5	16	13.5

working note 1 :

contribution margin per minute plastic injection molding machine time = contribution margin per unit / molding machine time required for one unit

ski guard :

contribution margin per minute plastic injection molding machine time = 140 / 8

= 17.5

golf guard :

contribution margin per minute plastic injection molding machine time = 160 / 10

= 16

fishing guard :

contribution margin per minute plastic injection molding machine time = 135 / 10

= 13.5

2)

ski guard offers the most profitable use of plastic injection molding machine, because contribution margin per minute plastic injection molding machine time is more (17.5) as comparred to golf guard (16) and fishing guard (13.5).

3) calculation of contribution margin per pound of the constrained resource :

particulars	ski guard	golf guird	fishing guard
selling price per unit	210	310	265
less : variable cost per unit	70	150	130
contribution margin per unit	140	160	135
pounds of plastic pellets per unit	7	16	6
contribution margin per pound (w n 2)	20	10	22.5

working note 2 :

contribution margin per pound = contribution margin per unit / pounds of plastic pellets per unit

ski guard :

contribution margin per pound = 140 / 7

= 20

golf guard :

contribution margin per pound = 160 / 16

= 10

fishing guard :

contribution margin per pound = 135 / 6

= 22.5

4) Fishing guard offers the most profitable use of the plastic pellets, because contribution margin per pound is more (22.5) as comparred to ski guard (20) and golf guard (10).

5) golf guard has the largest contribution margin per unit, because contribution margin per unit is more (160) as comparred to ski guard (140) and fishing guard (135).