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 $ 230 $ 310 $ 245 Variable cost per unit $ 160 $ 190 $ 115 Plastic injection molding machine processing
time required to produce one unit 11 minutes 9 minutes 10 minutes Pounds of plastic pellets per unit 7 pounds 13 pounds 14 pounds

Explanation / Answer

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?

Ski Guard

Golf Guard

Fishing Guard

Selling price per unit  

$230

$310

$245

Variable cost per unit  

$160

$190

$115

Contribution margin per unit   

$70

$120

$130

/ Constraint

11 Minutes

9 Minutes

10 Minutes

Total

$6.36

$13.33`

$13

2. Which product offers the most profitable use of the plastic injection molding machine?

“Golf Guard 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?

Ski Guard

Golf Guard

Fishing Guard

Selling price per unit  

$230

$310

$245

Variable cost per unit  

$160

$190

$115

Contribution margin per unit   

$70

$120

$130

/ Constraint

7 Pounds

13 Pounds

14 Pounds

Total

$10.00

$9.23

$9.29

4. Which product offers the most profitable use of the plastic pellets?

“Ski Guard product offers the most profitable use of the plastic pellets”

5. Which product has the largest contribution margin per unit?

Fishing Guard product has the largest contribution margin per unit

= $130/ per unit

Ski Guard

Golf Guard

Fishing Guard

Selling price per unit  

$230

$310

$245

Variable cost per unit  

$160

$190

$115

Contribution margin per unit   

$70

$120

$130

/ Constraint

11 Minutes

9 Minutes

10 Minutes

Total

$6.36

$13.33`

$13

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