Question

Exercise 12-5 Volume Trade-Off Decisions (LO12-5] Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. Data concerning three of the company's most popular models appear below. Ski 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 Guard $ 230 $ $ 80 $ 12 minutes 14 pounds Golf Guard 320 $ 160 $ 8 minutes 15 pounds Fishing Guard 275 140 5 minutes 13 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

Answer 1. Ski Guard Golf Guard Fishing Guard 275 140 230 320 160 80 150 160 35 Selling price per unit Variable cost per unit Contribution margin per unit Plastic injection molding machine processing time required to produce one unit Contribution margin per unit of the constrained resource 12 12.50 20.00 27.00 Answer 2. Fishing Guard Answer 3. Ski Guard Golf Guard Selling price per unit Variable cost per unit Contribution margin per unit Pounds of plastic pellets required to produce one unit Contribution margin per unit of the constrained resource 230 80 150 Fishing Guard 275 140 135 160 15 14 13 10.71 10.67 10.38 Answer 4. Ski Guard Answer 5. Golf Guard