company’s most popular models appear below. Ski Guard Golf Guard Fishing Guard Selling price per unit $ 240 $ 370 $ 225 Variable cost per unit $ 100 $ 255 $ 105 Plastic injection molding machine processing time required to produce one unit 7 minutes 5 minutes 7 minutes Pounds of plastic pellets per unit 15
Outdoor Luggage, Incorporated, 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 price per unit | $ 240 | $ 370 | $ 225 | |||
| Variable cost per unit | $ 100 | $ 255 | $ 105 | |||
| Plastic injection molding machine processing time required to produce one unit | 7 | minutes | 5 | minutes | 7 | minutes |
| Pounds of plastic pellets per unit | 15 | pounds | 7 | pounds | 10 | pounds |
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?
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?
The contribution margin per unit gives vital insights into a product's or service's profitability, assisting businesses in determining how much money from each sale contributes to paying fixed costs (such as rent, wages, and utilities) and creating profit. It is used to make pricing decisions, examine the impact of changes in variable costs or selling prices, and find lucrative items or services.
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