Q6 - 10 marks

Biggity-Baggity-Boo Inc. makes high-end, hard-sided luggage for sports equipment. Data concerning three of the company's most popular models appear below.

Hockey Bag

Golf Bag

Ski Bag

Selling price per unit

$ 270

$ 400

$ 185

Variable cost per unit

$ 80

$ 170

$ 85

Kgs of plastic pellets per unit

9

kg

9

kg

7

kg

Required:

1.Which product has the largest unit contribution margin, and what is that contribution margin?

2.

a.A severe shortage of plastic pellets has constrained production. What is the contribution margin per unit of the constrained resources for Hockey Bag, Golf Bag and Ski Bag?

b.Under this constraint, which product would you recommend Biggity-Baggity-Boo makes first?

c.Which product would be the least profitable use of this constraint?