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. Selling price per unit Variable cost per unit Plastic injection molding machine processing time required to produce one unit Pounds of plastic pellets per unit Ski Guard $ 250 $ $ 160 $ 13 minutes 7 pounds Golf Guard 250 $ 140 $ 6 minutes 10 pounds Fishing Guard 255 155 5 minutes 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

Requirement – 1

	Ski Guard	Golf Guard	Fishing Guard
Contribution margin per minute of the constrained resourse	$6.92 per minute	$18.33 per minute	$20.00 per minute

	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$250.00	250.00	255.00
Variable cost per unit	$160.00	140.00	155.00
Contribution margin per unit	$90.00	110.00	100.00
/ Constraint	13 minutes	6 minutes	5 minutes
Total	$6.92 per minute	$18.33 per minute	$20.00 per minute

Requirement – 2

“FISHING GUARD” product offers the most profitable use of the plastic injection molding machine.

Requirement – 3

	Ski Guard	Golf Guard	Fishing Guard
Contribution margin per pound of the constrained resourse	$12.86 per pound	$11.00 per pound	16.67 per pound

	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	$250.00	250.00	255.00
Variable cost per unit	$160.00	140.00	155.00
Contribution margin per unit	$90.00	110.00	100.00
/ Constraint	7 pounds	10 pounds	6 pounds
Total	$12.86 per pound	$11.00 per pound	16.67 per pound

Requirement – 4

“FISHING GUARD“ Product offers the most profitable use of the plastic pellets.

Requirement – 5

“GOLF GUARD“ product has the largest contribution margin of $110 per unit.