Outdoor Luggage, Inc, makes high-end hard-sided luggage for sports equipment. Data concerning...
Question:
Outdoor Luggage, Inc, makes high-end hard-sided luggage for sports equipment. Data concerning three of the company's most popular models appear below.
| Ski Guard | Golf Guard | Fishing Guard | |
|---|---|---|---|
| Selling per unit | $300 | $300 | $255 |
| Variable cost per unit | $130 | $150 | $75 |
| Plastic injection molding machine processing | 7 minutes | 8 minutes | 15 minutes |
| Pounds of plastic pellets per unit | 5 pounds | 6 pounds | 15 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?
Contribution Margin:
Contribution margin in its most common form is calculated by simply subtracting variable costs from selling prices. However, when resources are limited, management may desire to compute the contribution margin per unit of constrained resource. This figure is found by dividing the contribution margin per unit of product by the quantity of the constrained resource required per unit of product.
Answer and Explanation: 1
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Computing the Sales Mix with Limited Resources
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Chapter 8 / Lesson 6
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Sales mix is the cumulative goods produced by a business, ideally organized to maximize efficient use of the finite resources available. Learn how this is calculated, and how the theory of constraints is considered in the process.
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