Exercise 13-5 (Algo) Volume Trade-Off Decisions [LO13-5] 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 $ 210 $ 310 $ 265 Variable cost per unit $ 70 $ 150 $ 130 Plastic injection molding machine processing time required to produce one unit 8 minutes 10 minutes 10 minutes Pounds of plastic pellets per unit 7 pounds 16 pounds 6 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?
Exercise 13-5 (Algo) Volume Trade-Off Decisions [LO13-5] 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 $ 210 $ 310 $ 265 Variable cost per unit $ 70 $ 150 $ 130 Plastic injection molding machine processing time required to produce one unit 8 minutes 10 minutes 10 minutes Pounds of plastic pellets per unit 7 pounds 16 pounds 6 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?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Exercise 13-5 (Algo) Volume Trade-Off Decisions [LO13-5]
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 | $ 210 | $ 310 | $ 265 | |||
| Variable cost per unit | $ 70 | $ 150 | $ 130 | |||
| Plastic injection molding machine processing time required to produce one unit | 8 | minutes | 10 | minutes | 10 | minutes |
| Pounds of plastic pellets per unit | 7 | pounds | 16 | pounds | 6 | 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?
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