Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. D

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.

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?

Ski
Guard Golf
Guard Fishing
Guard Selling price per unit $ 210 $ 310 $ 265 Variable cost per unit $ 70 $ 150 $ 130 Plastic injection molding machine processing
time required to produce one unit 8 minutes 10 minutes 10 minutes Pounds of plastic pellets per unit 7 pounds 16 pounds 6 pounds

Explanation / Answer

Solution 1 Contribution Ski Golf Fishing Selling price per unit 210 310 265 Variable cost per unit 70 150 130 Contribution (S.P-VC) 140 160 135 Divide: Time per unit 8 10 10 Cont per minute 17.5 16 13.5 2 Since, The Contribution per minute of Ski guard is the maximum, it offers the most profitable use of the plastic injection molding machine 3 Cont per plastic pellets Ski Golf Fishing Selling price per unit 210 310 265 Variable cost per unit 70 150 130 Contribution (S.P-VC) 140 160 135 Divide: Plastic per unit 7 16 6 Cont per Plastic pound 20 10 22.5 4 Since, The Contribution per Pound of plastic pallets of fishingguard is the maximum, it offers the most profitable use of the Plastic pallets 5 As the contribution of Golf per unit is maximum i.e. 160 , it has the largest contribution margin .

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