When dealing with a constrained resource situation, a company should generally produce only the product with the highest contribution margin ratio, as this will insure the highest profit level.

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While producing the product with the highest contribution margin ratio may seem like the most profitable choice, it is important to also consider other factors such as customer demand, production capacity, and overall sales volume. In some cases, producing a lower margin product may actually be more profitable if it helps to increase overall sales and reinforce customer loyalty. Therefore, a company should carefully analyze all relevant factors before making a decision about which product(s) to produce in a constrained resource situation.

When Dealing with a Constrained Resource Situation, a Company Should