Problems 1 et 3 of the exam

Problem 1

Keep RACING BIKES Drop RACING BIKES Difference

Sales 60000 0 (60000)
Variable 33000 0 (33000)
manufacturing and
selling expenses
Contribution margin 27000 0 (27000)
Fixed expenses
Advertising 6000 6000 0
Depreciation of 8000 8000 0
special equipment
Salaries of product 10000 0 10000
line managers
Allocated common 12000 0 12000
fixed expenses
Total fixed expenses 36000 14000 22000
Net operating loss (9000) (14000) (5000)

The fixed costs that can be avoided by dropping the racing bikes (14000) are less than the contribution
margin that will be lost (27000) so based on the data given the racing bikes line should not be
discontinued.
Problem 3

1/ the contribution margin per unit for each product

SKI GUARD GOLF GUARD FISHING GUARD

SELLING PRICE PER 200 300 255
UNIT
VARIABLE COST PER 80 140 55
UNIT
CONTRIBUTION 120 160 200
MARGIN PER UNIT
The fishing guard has the largest unit contribution margin

2/

SKI GUARD GOLF GUARD FISHING GUARD

CONTRIBUTION 120 160 200
MARGIN PER UNIT
PLASTIC INJECTION 2 minutes 5 minutes 4 minutes
MACHINE REQUIRED
TO PRODUCE ONE
UNIT
CONTRIBUTION 120/2=60 per minutes 32 per minutes 50 per minutes
MARGIN PER UNIT OF
THE CONSTRAINED
RESSOURCE
The product that it would be the most profitable use of this constraint is the ski guard

The product that it would be the least profitable use of this constraint is the golf guard

3/

SKI GUARD GOLF GUARD FISHING GUARD

CONTRIBUTION 120 160 200
MARGIN PER UNIT
POUNDS OF PLASTIC 7 4 8
PELLETS PER UNIT
CONTRIBUTION 120/7=17.142 40 25
MARGIN PER UNIT OF
THE CONSTRAINED
RESSOURCE
The product that it would be the most profitable use of this constraint is the golf guard

The product that it would be the least profitable use of this constraint is the ski guard

4/ the manager must use the maximum of the bottleneck resource in the production of the units of the
golf guard then the units of fishing guard and the remainder for the production of the units of ski guard

So the product mix that the manager should consider is the golf guard .