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 Ski Guard Golf Guard Fishing Guard unit 140 Selling price per Variable Costs per unit Plastic injection molding machine processing $200 S300 $255 60 Time required to produce one unit 2 minutes 5 minutes 4 minutes Pounds of plastic pellets per unit 7 pounds 4 pounds 8 pounds Required . If we assume that the total time available on the plastic injection molding machine is the constraint in the production process, how much contribution marg earned by each product? (6 points) in per minute of the constrained resource is 2. Which product offers the most profitable use of the plastic injection molding machine? (1 points) 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? (6 points) . Which product offers the most profitable use of the plastic pellets? (1 point)

Explanation / Answer

Solution:

First of all we need to calculate the Contribution Margin Per Unit of each product

Calculation of Contribution Margin Per Unit

SKI Guard

Golf Guard

Fishing Guard

Selling Price Per Unit

$200

$300

$255

Less: Variable Cost Per Unit

$60

$140

$55

Contribution Margin per unit

$140

$160

$200

Part 1 --- Contribution Margin per minute of constrained resource – Constraint resource – total time available on the plastic injection molding machine

Contribution Margin Per Minute of the constrained resource

SKI Guard

Golf Guard

Fishing Guard

Contribution Margin per unit (a)

$140

$160

$200

Time required to produce one unit (b)

2 Minutes

5 Minutes

4 Minutes

Contribution Margin per Minute of constrained resource (a/b)

$70.00

$32.00

$50.00

Part 2 – SKI Guard product offers the most profitable use of the plastic injection molding machine since it have highest contribution margin per minute.

Part 3 -- Contribution Margin per minute of constrained resource – Constraint resource – Plastic Pallet

Contribution Margin Per Pound of the constrained resource

SKI Guard

Golf Guard

Fishing Guard

Contribution Margin per unit (a)

$140

$160

$200

Required Pounds of Plastic Pallets per unit (b)

7

4

8

Contribution Margin per pound of constrained resource (a/b)

$20.00

$40.00

$25.00

Part 4 --- Golf Guard offers the most profitable use of the plastic pallets.

Part 5 --- Please refer working of calculation of contribution margin per unit

Fishing Guard has the largest contribution margin per unit.

Constrained resource in the resource at scarcity which are in shortage. It is the situation of key factor. The largest contribution margin per key factor should be selected under the constrained resources.

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Calculation of Contribution Margin Per Unit

SKI Guard

Golf Guard

Fishing Guard

Selling Price Per Unit

$200

$300

$255

Less: Variable Cost Per Unit

$60

$140

$55

Contribution Margin per unit

$140

$160

$200

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