Outdoor luggage Inc. makes high-end hard sided luggage for sports equipment. Dat
ID: 2474634 • Letter: O
Question
Outdoor luggage Inc. makes high-end hard sided luggage for sports equipment. Data concerning 3 of the company most popular models appear below.
Std.
Guard
Gof
Guard
fishing
Guard
Selling price per unit
$200
$300
$255
Variable cost per unit
$60
$140
$55
Time required to produce one unit
2 minutes
5 minutes
4 minutes
pounds of plastic pellets per unit
7 pounds
4 pounds
8 pounds
1) given that time is the constraint,
a) which of the above would be the most profitable?
b) which would be the least profitable?
2) A severe shortage of plastic pellets has required the company to cut back on production so now the constraint is no longer time but pounds of plastic.
a) which of the above would be the most profitable?
b) which would be the least profitable?
Std.
Guard
Gof
Guard
fishing
Guard
Selling price per unit
$200
$300
$255
Variable cost per unit
$60
$140
$55
Time required to produce one unit
2 minutes
5 minutes
4 minutes
pounds of plastic pellets per unit
7 pounds
4 pounds
8 pounds
Explanation / Answer
1) ans
The following assumptions are taken to calculate the contribution margin
Time is constraint
To calculate the units produced and contribution margin .we will take 20 minutes as standard , so that each product manufactured can be calculated in whole numbers
The contribution is selling price minus variable cost. Find below the calculation of all three products
calculation of contribution margin for production in 20 minutes
Std guard
gof guard
fishing guard
particulars
units
rate per unit
total
units
rate per unit
total
units
rate per unit
total
selling amount
10
200
2000
4
300
1200
5
255
1275
variable cost
10
60
600
4
140
560
5
55
275
contribution
1400
640
1000
The most profitable if time is constraint is std guard as its contribution is highest at $1400
The least profitable if time is constraint is gof guard as its contribution is lowest at $640
calculation of contribution margin for production in 20 minutes
Std guard
gof guard
fishing guard
particulars
units
rate per unit
total
units
rate per unit
total
units
rate per unit
total
selling amount
10
200
2000
4
300
1200
5
255
1275
variable cost
10
60
600
4
140
560
5
55
275
contribution
1400
640
1000
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