Coviello Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For example, the selling price of product C98I is $368.00, its unit variable cost is $257.60, and its unit contribution margin is $110.40. One unit of the product requires 16 minutes of the constrained resource. Monthly sales are 4,400 units. What is the profitability index for product C98I?
A)0.30
B)$23.00 per minute
C)$485,760
D)$6.90 per minute

Question

Quizplus · Accepted Answer

To calculate the profitability index for product C98I, we need to divide the unit contribution margin by the time required per unit of product:

Profitability index = Unit contribution margin / Time required per unit

Time required per unit = 16 minutes

Unit contribution margin = Selling price - Unit variable cost
Unit contribution margin = $368.00 - $257.60 = $110.40

Profitability index = $110.40 / 16 minutes ≈ $6.90 per minute

Therefore, the answer is D ($6.90 per minute).

Coviello Corporation Would Like to Determine the Relative Profitability of the Company's