Francke Corporation would like to determine the relative profitability of a number of jobs. For example, job H29O has revenues of $86,400 and avoidable costs of $69,120, resulting in an incremental profit of $17,280. The job requires 160 hours of the constrained resource. The job is responsible for 13% of the company's total profit for the period. What is the profitability index for job H29O?
A)$108 per hour
B)$540 per hour
C)0.13
D)0.20

Question

Quizplus · Accepted Answer

The profitability index is calculated as incremental profit divided by the hours of constrained resource used. For job H29O, it is $17,280 / 160 hours = $108 per hour.

Francke Corporation Would Like to Determine the Relative Profitability of a Number