Exercise 11-5 (Algo) Volume Trade-Off Decisions [LO11-5]

Outdoor Luggage, Incorporated, 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	$ 250		$ 370		$ 235
Variable cost per unit	$ 170		$ 285		$ 145
Plastic injection molding machine processing time required to produce one unit	10	minutes	11	minutes	15	minutes
Pounds of plastic pellets per unit	11	pounds	6	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?