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

Solution
1	Contribution
		Ski	Golf	Fishing
	Selling price per unit	210	310	265
	Variable cost per unit	70	150	130
	Contribution (S.P-VC)	140	160	135
	Divide: Time per unit	8	10	10
	Cont per minute	17.5	16	13.5
2	Since, The Contribution per minute of Ski guard is the maximum, it offers the most profitable use of the plastic injection molding machine
3	Cont per plastic pellets
		Ski	Golf	Fishing
	Selling price per unit	210	310	265
	Variable cost per unit	70	150	130
	Contribution (S.P-VC)	140	160	135
	Divide: Plastic per unit	7	16	6
	Cont per Plastic pound	20	10	22.5
4	Since, The Contribution per Pound of plastic pallets of fishingguard is the maximum, it offers the most profitable use of the Plastic pallets
5	As the contribution of Golf per unit is maximum i.e. 160 , it has the largest contribution margin .