Outdoor Luggage, Inc., makes high-end hard-sided luggage for sports equipment. D
ID: 2589395 • Letter: O
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
Selling price per unit
$
230
$
320
$
275
Variable cost per unit
$
80
$
160
$
140
Plastic injection molding machine processing
time required to produce one unit
12 minutes
8 minutes
5 minutes
Pounds of plastic pellets per unit
14 pounds
15 pounds
13 pounds
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
$
320
$
275
Variable cost per unit
$
80
$
160
$
140
Plastic injection molding machine processing
time required to produce one unit
12 minutes
8 minutes
5 minutes
Pounds of plastic pellets per unit
14 pounds
15 pounds
13 pounds
Explanation / Answer
Answer: Contribution margin : Selling price - variable cost
To calculate CM per plastic injection divide it by minutes it is used for the product.
Similarly for the plastic pellets
Ski guard Golf Guard Fishing guard Selling price 230 320 275 Variable cost 80 160 140 Plastic injection time in minute 12 8 5 Pounds of plastic used 14 15 13 CM per minute of plastic injection 12.5 20 27 Most profitable use is by fishing guard of 27 CM per pound usage of plastic pellet 10.71429 10.666667 10.38461538 Ski guard offers the most profitable use of the Plastic pellet used per pound CM per unit made is 150 160 135 Golf guard gives the highest contribution marginRelated Questions
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