Managerial decision making

Exercise 5C: Usefulness of a restricted resource

The School Pack company manufactures school bags with a very resistant plastic bottom. It has three models that are the best sellers. The following table provides you with information about these models.

Required:

The restricted resource is the processing time on the machine. 1. Determine the highest and lowest performance model in using processing time as a constrained resource. 2. Determine the model with the highest and the lowest performance in the use of plastic if this is the restricted resource. 3. Determine the model with the highest contribution margin. Did this model turn out to be the top performer in the answers above? If not, explain why.

Exercise 5D: Payback period A company that sells solid wood for the manufacture of wood cabinets and furniture is considering investing in a wood molding machine that will produce the following cash flows for years to come. The investment will be made in two years as indicated below.

Year	Investment	Cash Flow
1	$28,500	$1,500
2	$6,000	$3,000
3		$6,000
4		$6,750
5		$9,000
6		$7,500
7		$6,000
8		$4,500
9		$3,750
10		$3,750

Required:

1. Determine the payback period for the investment. 2. Indicate if this method is an adequate tool to determine whether the company should make the investment or not and why.