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?

Reference links

Ski
Guard Golf
Guard Fishing
Guard Selling price per unit $ 260 $ 270 $ 305 Variable cost per unit $ 130 $ 130 $ 180 Plastic injection molding machine processing
time required to produce one unit 4 minutes 6 minutes 9 minutes Pounds of plastic pellets per unit 9 pounds 16 pounds 7 pounds

Explanation / Answer

Solution:

Part 1 --- Contribution Margin per minute

1) Contribution Margin Per Machine Hour

Ski Guard

Golf Guard

Fishing Guard

Contribution Margin per unit

(Unit Selling Price - Unit Variable Cost) (a)

$130

$140

125

Machine Hours needed to produce 1 unit (b)

4 Minutes

6 minutes

9 minutes

Contribution Margin per machine hour (a/b)

$32.50

$23.33

$13.89

Part 2 --- Product Ski Guard offers the most profitable use of the plastic injection molding machine

Part 3 --- Contribution Margin Per Pound

1) Contribution Margin Per Pound

Ski Guard

Golf Guard

Fishing Guard

Contribution Margin per unit (Unit Selling Price - Unit Variable Cost) (a)

$130

$140

125

Pounds of Plastic Pallets per unit (b)

9 pounds

16 pounds

7 pounds

Contribution Margin per pound (a/b)

$14.44

$8.75

$17.86

Part 4—Product Finishing Guard offers the most profitable use of the Plastic Pellets

Part 5 – Product Golf Guard has the largest Contribution Margin per unit.

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1) Contribution Margin Per Machine Hour

Ski Guard

Golf Guard

Fishing Guard

Contribution Margin per unit

(Unit Selling Price - Unit Variable Cost) (a)

$130

$140

125

Machine Hours needed to produce 1 unit (b)

4 Minutes

6 minutes

9 minutes

Contribution Margin per machine hour (a/b)

$32.50

$23.33

$13.89

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