When there is a production constraint, a company should emphasise the products with
A)the highest unit contribution margins.
B)the highest contribution margin ratios.
C)the highest contribution margin per unit of the constrained resource.
D)the highest contribution margins and contribution margin ratios.

Question

Quizplus · Accepted Answer

When there is a production constraint, a company should emphasise the products with the highest contribution margin per unit of the constrained resource. This is because the constrained resource limits the production of all products, so it is important to maximise the contribution margin obtained from each unit of the constrained resource. The contribution margin per unit of the constrained resource can be calculated by taking the contribution margin of the product and dividing it by the amount of the constrained resource used to produce one unit of the product. Therefore, emphasising products with the highest contribution margin per unit of the constrained resource will maximise the profitability of the company.

When There Is a Production Constraint, a Company Should Emphasise