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	$	270		$	350		$	185
Variable cost per unit	$	155		$	210		$	65
Plastic injection molding machine processing time required to produce one unit	7 minutes			9 minutes			12 minutes
Pounds of plastic pellets per unit	11 pounds			15 pounds			13 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	Golf	Fishing
		Guard	Guard	Guard
	Selling price per unit	270	350	185
	Variable cost per unit	155	210	65
	Contribution margin per unit	115	140	120
	/ Molding machine processing minute	7	9	12
	Contribution margin per minute	16.43	15.56	10.00
2.)	Product Ski Guard offers the most profitable use of the plastic injection molding machine.
3.)		Ski	Golf	Fishing
		Guard	Guard	Guard
	Selling price per unit	270	350	185
	Variable cost per unit	155	210	65
	Contribution margin per unit	115	140	120
	/Pounds of plastic pellets per unit	11	15	13
	Contribution margin per pound	10.45	9.33	9.23
4.)	Product Ski Guard offers the most profitable use of the plastic pellets.
5.)		Ski	Golf	Fishing
		Guard	Guard	Guard
	Selling price per unit	270	350	185
	Variable cost per unit	155	210	65
	Contribution margin per unit	115	140	120
	Product Golf Guard has the largest contrbution margin per unit.