Exercise 10-5 Utilizing a Constrained Resource [LO10-5] Outdoor Luggage Inc. mak
ID: 2583595 • Letter: E
Question
Exercise 10-5 Utilizing a Constrained Resource [LO10-5]
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
Selling price per unit $200 $300 $255
Variable cost per unit $60 $140 $55
Plastic injection molding machine processing
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:
1-a.
The total time available on the plastic injection molding machine is the constraint in the production process. What is the contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard?
1-b. Which product would be the most profitable use of this constraint?
Ski Guard
Golf Guard
Fishing Guard
1-c. Which product would be the least profitable use of this constraint?
Ski Guard
Golf Guard
Fishing Guard
2-a.
A severe shortage of plastic pellets has required the company to cut back its production so much that the plastic injection molding machine is no longer the bottleneck. Instead, the constraint is the total available pounds of plastic pellets. What is contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard?
2-b. Which product would be the most profitable use of this constraint?
Ski Guard
Golf Guard
Fishing Guard
2-c. Which product would be the least profitable use of this constraint?
Ski Guard
Golf Guard
Fishing Guard
3. Which product has the largest unit contribution margin?
Ski Guard
Golf Guard
Fishing Guard
Explanation / Answer
1a Ski Guard Golf Guard Fishing Guard Selling price per unit 200 300 255 Variable cost per unit 60 140 55 Contribution margin per unit 140 160 200 Plastic injection molding machine processing time required to produce one unit 2 5 4 Contribution margin per unit of the constrained resource 70 32 50 b Ski Guard c Golf Guard 2a Ski Guard Golf Guard Fishing Guard Selling price per unit 200 300 255 Variable cost per unit 60 140 55 Contribution margin per unit 140 160 200 Pounds of plastic pellets required to produce one unit 7 4 8 Contribution margin per unit of the constrained resource 20 40 25 b Golf Guard c Ski Guard 3 Fishing Guard
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