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 $ 250 $ 250 $ 255 Variable cost per unit $ 160 $ 140 $ 155 Plastic injection molding machine processing time required to produce one unit 13 minutes 6 minutes 5 minutes Pounds of plastic pellets per unit 7 pounds 10 pounds 6 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

Ski guard Golf Guard.  Fishing Guard

Sales price     250 250. 255

Variable Cost. 160. 140. 155

Contribution per unit. 90. 110 . 100

Time reqd for one unit. 13   6 5

Contribution per minute. 6.92 18.33 20

Plastic pellet used . 7 10 6

Contribution per pound . 12.86 11 16.67

Of pellet used

1. If total time available on Plastic Injection machine is the constraint resource, then contribution margin per unit of the constraint resource is $6 92, $18 33 & $20 for Ski guard, Golf guard and Fishing Guard respectively.

2. The correct answer is Fishing Guard since the contribution per minute on it is the highest.

3. If availability of plastic pellets is the constraint factor then contribution per unit is $12.86, $11 & $16.67 for Ski guard, Golf Guard amd fishing guard respectively.

4. The correct answer is Fishing guard since it has the highest contribution per pound of plastic pellets used.

5.Golf guard has the highest contribution margin per unit.

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