Question

Exercise 12-5 Volume Trade-Off Decisions (L012-5) 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 Golf Fishing Guard Guard Guard 270 $ 250 $ 185 160 $ 170 $ 85 5 minutes 6 minutes 2 minutes 9 pounds 9 pounds 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 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? (Round your final answers to 2 decimal places.) Contribution margin per minute of the constrained resource Ski Guard per minute Golf Guard per minute Fishing Guard per minute - Required 1 Required 2 >

Answer 1

Computation of Contribution per minute (Assuming time is constrained) Solution 1. Particulars Ski Guard Golf Guard Fishing Guard Selling Price per unit $ 270.00 $ 250.00 $ 185.00 Less: Variable Cost per unit $ 160.00 $ 170.00 $ 85.00 Contribution per unit (A) $110.00 $ 80.00 $ 100.00 Time per unit (minutes) (B) 6 Contribution per minute (A/B) $ 22.00 $ 13.33 $ 50.00 Solution 2. Fishing Guard offers the most profitable ($50 per minute) of the plastic injection machine. Computation of Contribution per minute (Assuming Plastic pelletes are constrained) Solution 3. Particulars Selling Price per unit Less: Variable Cost per unit Contribution per unit (A) Pounds of plastic pellets per unit (B) Contribution per pound (A/B) Ski Guard Golf Guard Fishing Guard $ 270.00 $ 250.00 $ 185.00 $ 160.00 $ 170.00 $ 85.00 $110.00 $ 80.00 $ 100.00 997 $ 12.22 $ 8.89 $ 14.29 Solution 4. Fishing Guard offers the most profitable ($14.29 per pound) of the plastic pellets. Solution 5. Computation of Contribution per unit Particulars Selling Price per unit Less: Variable Cost per unit Contribution per unit Ski Guard Golf Guard Fishing Guard $ 270.00 $ 250.00 $ 185.00 $ 160.00 $ 170.00 $ 85.00 $110.00 $ 80.00 $ 100.00 Ski Guard is having the highest Contribution per unit ($110)

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