Question

(Please show calculations for study purposes)

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		$	330		$	265
Variable cost per unit	$	90		$	150		$	105
Plastic injection molding machine processing time required to produce one unit	4 minutes			10 minutes			5 minutes
Pounds of plastic pellets per unit	5 pounds			11 pounds			12 pounds

Required:  Constrained Resources - Most Profitable Use Decision

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	Gurard	Guard
	Selling price per unit			230	330	265
	Variable cost per unit			90	150	105
	contribution margin			140	180	160
	machine processing min			4	10	5
	Contribution margin per min			35.00	18.00	32.00
2)	Ski guard
3)				ski	Golf	fishing
				Guard	Gurard	Guard
	Selling price per unit			230	330	265
	Variable cost per unit			90	150	105
	contribution margin			140	180	160
	pounds per unit			5	11	12
	Contribution margin per pound			28.00	16.36	13.33
4)	Ski guard
5)	Golf guard has largest contribution