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. Guard 280 $ 90 $ $ $ Golf Guard 200 $ 160 $ Fishing Guard 245 115 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 6 minutes 14 minutes 12 pounds 10 pounds 2 minutes 8 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

Resources are finite and therefore, a business has to make important decisions in order to maximise profit.
Constrained resources require businesses to make decisions about which products to make and in
what quantities.
Part 1 - Outdoor luggage Inc.
	SG	GG	FG
S.P	280	200	245
Less:-
VC	90	160	115
Contribution Margin (a)	190	40	130
Constrained resource - Machine processing time (b)	6	14	2
Contribution Margin per Constrained resouce ( a/b)	31.66666667	2.857142857	65
Rank	II	III	I
2.Fishing guard
Part 3	SG	GG	FG
S.P	280	200	245
Less:-
VC	90	160	115
Contribution Margin (a)	190	40	130
Constrained resource -plastic pellets (b)	12	10	8
Contribution Margin per Constrained resouce ( a/b)	15.83333333	4	16.25
Rank	II	III	I
4. Fishing guard
5. Ski guard