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 companys 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