The general rule to apply to maximize profit when capacity is in short supply is:
A)Minimize the contribution margin per unit of capacity.
B)Maximize the margin of safety per unit of capacity.
C)Maximize the contribution margin per unit of capacity.
D)Minimize the margin of safety per unit of capacity.
E)Maximize the unit contribution margin.

Question

Quizplus · Accepted Answer

When capacity is in short supply, it is important to maximize the contribution margin per unit of capacity, which represents the amount of revenue available to cover fixed costs and contribute to profit. Maximizing the unit contribution margin alone may not be sufficient, as it does not take into account the limitations imposed by limited capacity. Minimizing the margin of safety per unit of capacity may lead to taking on too much risk, while minimizing the contribution margin per unit of capacity would reduce profitability. Therefore, choice C is the best option.

The General Rule to Apply to Maximize Profit When Capacity