Week 9 practice

Outdoor Luggage Inc. makes high-end, hard-sided luggage for sports equipment. Data concerning three of the « popular models appear below. Ski Golf Fishing Guard Guard Guard Selling price per unit $230 $330 $265 Variable cost per unit $ % $150 $105 Plastic injection moulding machine processing time required per unit 4 min 10 min 5 min Kgs of plastic pellets per unit 5kg 11kg 12kg Required: 1-a. The total time available on the plastic injection moulding machine is the constraint in the production process contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard? Ski Guard | Goffet Selling price per unit $ 230 $ Variable cost per unit 90 Contribution margin per unit $ 1402 § Plastic injection molding machine processing time required to produce one unit 4| minutes 10| mit Contribution margin per unit of the constrained resource $ 35.00|per minute $ 18.00|pel 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 moulding machine is no longer the bottleneck. Instead, the constraint is the total available kilograms ¢ contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard Ski Guard Golf Guard | Selling price per unit $ 230 $ 330 Variable cost per unit 90 150 Contribution margin per unit $ 140 = $ 180 Kgs of plastic pellets required to produce one unit F 5|kgs F 11{kgs E Contribution margin per unit of the constrained resource h$ 28.00 | per kg h$ 16.36 | per kg E 2-b. Which product would be the most profitable use of this constraint? < Ski Guard

Fisning Guara Golf Guard 2-c. Which product would be the least profitable use of this constraint? Ski Guard ¢ Fishing Guard Golf Guard 3. Which product has the largest unit contribution margin? ¢ Golf Guard Ski Guard Fishing Guard Explanation 1. Production of the Ski Guard product would be the most profitable use of the constrained resource which is, in this ¢ moulding machine. The contribution margin per minute is $35.00 for this product, which is larger than for the other t 2. In this part, the constraint is the available pounds of plastic pellets. In this case, production of the Ski Guard would be the most profitable use of the constrained resource. The contribu constrained resource for this product is $28.00, which is larger than for the other two products. 3. The Golf Guard product has the largest unit contribution margin.

ase, time on the plastic injection two products. ition margin per unit of the

Outdoor Luggage Inc. makes high-end, hard-sided luggage for sports equipment. Data concerning three of the popular models appear below. Ski Guard Golf Fishing Guard Guard Selling price per unit $200 $300 $255 Variable cost per unit $ 60 $140 $ 55 Plastic injection moulding machine processing time required per unit 2 min 5 min 4 min Kgs of plastic pellets per unit 7 kg 4 kg 8 kg Required: 1-a. The total time available on the plastic injection moulding machine is the constraint in the production proce: contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard? Ski Guard Golf Gua Selling price per unit $ 200 $ Variable cost per un‘it_“ 60 | Contribution margin per unit ) $ 140 5 § Plastic injection molding machine processing time required to produce one unit F 2[ minutes F 5| minut Contribution margin per unit of the constrained resource h$ 70‘ per minute hs 32|perm 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 th moulding machine is no longer the bottleneck. Instead, the constraint is the total available kilograms of | contribution margin per unit of the constrained resources for Ski Guard, Golf Guard and Fishing Guard? Ski Guard Golf Guard Fishir Selling price per unit $ 200 $ 300 $ Variable cost per unit 60 140 Contribution margin per unit $ 140 = $ 160 = $ Kgs of plastic pellets required to produce one unit F 7[ kgs 4|kgs 8 Contribution margin per unit of the constrained resource h$ 20 1 per kg $ 40|per kg $ 25

» company’s most ss. What is the rd Fishing Guard 300 $ 255 140 55 160 3 $ 200 38 F 4| minutes inute ES 50| per minute 1at the plastic injection slastic pellets. What is the B — g Guard 255 55 200 kgs per kg

se, time on the plastic injection sroducts. tion margin per unit of the

Contribution margin per unit of the constrained resource (a) + (b) $ 75 per hour $ 60 per hour The offer to upholster furniture for $45 per hour should be accepted. The time would be used to upholster Loveseats. If thi: production and sales of furniture, the time would be worth $100 per hour—a net gain of $55 per hour. If Loveseats are alrez demand, then having Loveseats upholstered at the other company would free up capacity to produce more of the other fur additional time is worth more than $45 per hour.

oduct lines and the xperience to master and ion concerning three of the > to work overtime. 1y be willing to pay these of $45 per hour. The sIsterers should be able to 1anagement accept the 'source: sofa ) hours ) per hour products: Love Seat $1,500 1,000 $ 5ee 5 hours

Valley Meat Processing Corporation is a major processor of beef and other meat products. The company hat steaks on hand, and it is trying to decide whether to sell the T-bone steaks as is or to process them further ir York—cut steaks. Management believes that a kilogram of T-bone steak would yield the following profit: Wholesale selling price ($16.00 per kilogram) $16.00 Less joint costs incurred up to the split-off point where T-bone steak can be identified as a separate product 12.00 Profit per kilogram $ 4.00 As mentioned above, instead of being sold as is, the T-bone steaks could be further processed into filet migi steaks. Cutting one side of a T-bone steak provides the filet mignon, and cutting the other side provides the gram T-bone steak cut in this way will yield one 181-gram filet mignon and one 241-gram New York cut; the re The cost of processing the T-bone steaks into these cuts is $1.40 per kilogram. The filet mignon can be sold and the New York cut can be sold wholesale for $22 per kilogram. Required: 1. Determine the profit for each 480-gram T-bone steak processed further into filet mignon and New York—ct answers to 2 decimal places.) | Per 480 gram | T-Bone Revenue from further processing: Selling price of one filet mignon $ 471 Selling price of one New York cut 5.30 Total revenue from further processing 10.01 Less revenue from one T-bone steak F 7.68 Incremental revenue from further processing 233 Less cost of further processing F 0.67 Profit from further processing h $ 1.66 2. Would you recommend that the T-bone steaks be sold as is or processed further? Sold outright ¢ Processed further Explanation 1. Selling price of one filet mignon (181 kg x $26.00 per kilogram) = $4.71 Selling price of one New York cut (.241 kg x $22.00 per kilogram) = 5.30 Less revenue from one T-bone steak ($16.00 x .480 kg) = 7.68 Less cost of further processing ($1.40 x .480 kg) = 0.67 2. The t-bone steaks should be processed further into the filet mignon and the New York cut. This will yield $3.46 ($1.66/.£ profit for the company. The $4.00 “profit” per kilogram for T-bone steak mentioned in the problem statement is not rele contains allocated joint costs. The company will incur the allocated joint costs regardless of whether the T-bone steaks further; thus, this cost should be ignored in the decision.

s a large number of T-bone 1to filet mignon and New non and New York—cut New York cut. One 480- :maining grams are waste. retail for $26 per kilogram, Jt steaks. (Round your 180kg) per kilogram in added vant to the decision, because it are sold outright or processed

Dutiune, G sau, sinang ve.vy Direct labour 5.80 7.80 Added contribution margin $ 2.20 Thus, the company will gain $2.20 in contribution margin for each spindle of yarn that is further processed into a swea overhead costs are not relevant to the decision because they will be the same regardless of whether the yarn is sold ¢ we must omit the $16.00 cost of manufacturing the yarn because this cost will be incurred whether the yarn is sold as 2. The lowest price the company should accept is $27.80 per sweater. The simplest approach to this answer is: Present selling price per sweater $30.0 Less added contribution margin being realized on each sweater sold 2.2 Minimum selling price per sweater $27.8 A more involved approach to the same answer is to reason as follows: If the wool yarn is sold outright, then the company will realize a contribution margin of $9.40 per spindle: Per Spindle Selling price $20.00 Variable expenses: Raw wool $7.00 Direct labour 3.60 10.60 Contribution margin $ 9.40 This $9.40 is an opportunity cost. The price of the sweaters must be high enough to cover this opportunity cost. In additi to cover all of its variable costs from the time the raw wool is purchased until the sweater is completed. Therefore, the m Variable costs of producing a spindle of yarn: Raw wool $7.00 Direct labour 3.60 Added variable costs of producing a sweater: Buttons, etc 2.0 Direct labour 5.80 Total variable costs Opportunity cost—contribution margin if the yarn is sold outright Minimum selling price per sweater

and processes it into wool 1e costs and revenues for the wool yarn itself. tinued. Manufacturing )sts are variable. |ded revenues from further