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 270 $ 160 $ Golf Guard 250 $ 170 $ Fishing Guard 185 85 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 5 minutes 9 pounds 6 minutes 9 pounds 2 minutes 7 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

Given			(in $)
	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	270	250	185
Variable Cost per unit	160	170	85
Plastic injection molding machine processing time required to produce one unit	5 min	6 min	2 min
Pounds of plastic pellets per unit	9 pounds	9 pounds	7 pounds
Answer
1)
	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit (A)	270.00	250.00	185.00
Variable Cost per unit (B)	160.00	170.00	85.00
Contribution margin per unit (C=A-B)	110.00	80.00	100.00
Process time required to produce one unit (in Minutes) (D)	5	6	2
Contribution margin earned by each product (E=C/D)	22.00	13.33	50.00
2)
Assuming 8 hrs production in a day
No of units that can be produced in a day (F=(8 hrs*60mins)/D)	96	80	240
Contribution margin earned per day (G=C*F)	10560	6400	24000
Fishing Guard model offers most profitable use of the plastic injection molding machine as the time taken to produce an unit is low compared to other models
3)
Pounds of Plastic Pellets per unit (H)	9	9	7
Contibution margin earned per pound (I=C/H)	12.22	8.89	14.29
4)
As contribution margin per pound of "Fishing guard" product is greater comparing other 2 products, it is making most profitable use of the plastic pellets
5)
Ski Guard has the largest contribution model per unit