Question

In: Accounting

Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. Data concerning three of the company’s...

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 $ 300 $ 380 $ 225
Variable cost per unit $ 160 $ 170 $ 75
Plastic injection molding machine processing
time required to produce one unit
7 minutes 6 minutes 4 minutes
Pounds of plastic pellets per unit 11 pounds 13 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?

Solutions

Expert Solution

1
Ski Guard Golf Guard Fishing Guard
Selling price per unit 300 380 225
Less: Variable cost per unit 160 170 75
Contribution margin per unit 140 210 150
Plastic injection molding machine processing time per unit 7 6 4
Contribution margin per minute of the constrained resource 20.00 35.00 37.50
2
Fishing Guard offers the most profitable use of the plastic injection molding machine
3
Ski Guard Golf Guard Fishing Guard
Selling price per unit 300 380 225
Less: Variable cost per unit 160 170 75
Contribution margin per unit 140 210 150
Pounds of plastic pellets per unit 11 13 6
Contribution margin per minute of the constrained resource 12.73 16.15 25.00
4
Fishing Guard offers the most profitable use of the plastic pellets
5
Golf Guard has the largest contribution margin per unit

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