Relative profitability should be measured by dividing the incremental profit from a segment by the amount of the constrained resource required by that segment.

Question

Quizplus · Accepted Answer

This statement accurately describes the concept of relative profitability, which is a method to determine the profitability of a product or customer segment based on the usage of a limited resource. By dividing the incremental profit (additional profit earned from selling the product or serving the customer) by the amount of constrained resource required (such as labor hours, raw materials, or machine time), a company can identify which segments are the most profitable and optimize its resource allocation accordingly.

Relative Profitability Should Be Measured by Dividing the Incremental Profit