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	$	230		$	310		$	245
Variable cost per unit	$	160		$	190		$	115
Plastic injection molding machine processing time required to produce one unit	11 minutes			9 minutes			10 minutes
Pounds of plastic pellets per unit	7 pounds			13 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. 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	$230	$310	$245
Variable cost per unit	$160	$190	$115
Contribution margin per unit	$70	$120	$130
/ Constraint	11 Minutes	9 Minutes	10 Minutes
Total	$6.36	$13.33`	$13

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	$230	$310	$245
Variable cost per unit	$160	$190	$115
Contribution margin per unit	$70	$120	$130
/ Constraint	7 Pounds	13 Pounds	14 Pounds
Total	$10.00	$9.23	$9.29

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

“Ski Guard product offers the most profitable use of the plastic pellets”

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

Fishing Guard product has the largest contribution margin per unit

= $130/ per unit