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 290 $ 185 $ Golf Guard 190 $ 90 $ Fishing Guard 215 90 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 12 minutes 10 pounds 6 minutes 13 pounds 8 minutes 9 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	290	190	215
Less: Variable cost per unit	185	90	90
Contribution margin per unit	105	100	125
Plastic injection molding machine processing time per unit	12	6	8
Contribution margin per minute of the constrained resource	8.75	16.67	15.63
2
Golf Guard offers the most profitable use of the plastic injection molding machine
3
	Ski Guard	Golf Guard	Fishing Guard
Selling price per unit	290	190	215
Less: Variable cost per unit	185	90	90
Contribution margin per unit	105	100	125
Pounds of plastic pellets per unit	10	13	9
Contribution margin per minute of the constrained resource	10.50	7.69	13.89
4
Fishing Guard offers the most profitable use of the plastic pellets
5
Fishing Guard has the largest contribution margin per unit