Example of the Theory of Constraints Pigskin, Inc. manufactures two types of leather balls: footballs and soccer balls. The balls are manufactured on a stitching machine and no variable costs are incurred in operating the machine. Currently, the only variable costs are for materials. The company has produced the following data: At full capacity, the machine can operate for only 20 hours per day. Required: 1. Calculate the contribution margin per minute of the constraining resource for each product. 2. Assuming that Pigskin has unlimited demand for both of its products, what is the maximum daily contribution margin the company can earn? 3. Assuming that Pigskin's estimated customer demand is 1,000 units for footballs and 700 units for soccer balls, what is the maximum daily contribution margin the company can earn when operating the machine at full capacity? 4. A local sailmaker has a similar machine and is willing to rent it to Pigskin at an agreed cost per minute of usage. Assuming Pigskin's estimated daily demand is 1,000 units for footballs and 700 units for soccer balls and that the company has used its 1,200 machine processing minutes in an optimal fashion, what is the highest price Pigskin Company should be willing to pay for an additional minute of machine time? For the Solution, page down 1. Football $7.50 per minute; Soccer ball $17 per minute 2. Maximum contribution margin: $20,400 per day 3. Adding demand constraint: Maximum contribution margin $15,650 per day 4. Highest price per minute of outsourced machine time to produce more footballs: $7.50 per minute