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	$	240		$	370		$	225
Variable cost per unit	$	100		$	255		$	105
Plastic injection molding machine processing time required to produce one unit	7 minutes			5 minutes			7 minutes
Pounds of plastic pellets per unit	15 pounds			7 pounds			10 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. 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
Selling price per unit	$240	$370	$225
Variable cost per unit	$100	$255	$105
Contribution margin per unit	$140	$115	$120
/ Constraint7	7 Minutes	5 Minutes	7 Minutes
Total	$20	$23	$17.14

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

“Golf Guard 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?

	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$240	$370	$225
Variable cost per unit	$100	$255	$105
Contribution margin per unit	$140	$115	$120
/ Constraint	15 Pounds	7 Pounds	10 Pounds
Total	$9.33	$16.43	$12

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

“Golf Guard Product offers the most profitable use of the plastic pellets”

5. Which product has the largest contribution margin per unit?

Ski Guard product has the largest contribution margin per unit

= $140 per unit