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	$	320		$	320		$	275
Variable cost per unit	$	110		$	130		$	95
Plastic injection molding machine processing time required to produce one unit	13 minutes			10 minutes			2 minutes
Pounds of plastic pellets per unit	12 pounds			7 pounds			14 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 guard	Golf guard	Fishing guard
	Selling price per unit	$        320	$          320	$                275
Less:	Variable cost per unit	$        110	$          130	$                   95
(i)	Contribution margin per unit	$        210	$          190	$                180
(ii)	Plastic injection molding machine processing	13	10	2
(i) / (ii)	Contribution margin per unit of the constrained resource	$    16.15	$       19.00	$             90.00
		per minute	per minute	per minute
2	Most Profitable Product	=	Fishing guard
3		Ski guard	Golf guard	Fishing guard
	Selling price per unit	$        320	$          320	$                275
Less:	Variable cost per unit	$        110	$          130	$                   95
(i)	Contribution margin per unit	$        210	$          190	$                180
(ii)	Pounds plastic pellets per unit	12	7	14
(i) / (ii)	Contribution margin per unit of the constrained resource	$    17.50	$       27.14	$             12.86
		per pound	per pound	per pound
4	Most Profitable Product	=	Golf guard
5	Largest controllable margin	=	Ski guard