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	$	320		$	320		$	275
Variable cost per unit	$	110		$	130		$	95
Plastic injection molding machine processing time required to produce one unit	13 minutes			10 minutes			2 minutes
Pounds of plastic pellets per unit	12 pounds			7 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

1)

	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$320	$320	$275
Less: Variable cost per unit	110	130	95
Contribution margin per unit	$210	$190	$180
Plastic injection molding machine	13	10	2
Contribution margin per minute of the constrained resource	$16.15	$19	$90

2) Fishing Guard product offers the most profitable use of the plastic injection molding machine as the contribution margin per unit of the constrained resource of the Fishing Guard is the highest.

3)

	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$320	$320	$275
Less: Variable cost per unit	110	130	95
Contribution margin per unit	$210	$190	$180
Pounds of plastic pellets per unit	12	7	14
Contribution margin per pound	$17.5	$27.14	$12.86

4) Golf Guard product offers the most profitable use of the plastic pellets as the contribution margin per pound of Golf Guard is the highest.

5) Ski Guard product has the largest contribution margin per unit as the contribution margin per unit of Ski Guard is the highest.