When managers are deciding how much of each product to sell to maximize net income, they should:

Question

Quizplus · Accepted Answer

Focusing on the product that contributes the most toward covering indirect fixed costs in relation to the critical resource factor ensures that the company is making the most efficient use of its resources and will result in the highest net income. Simply focusing on the product with the highest contribution margin or selling price does not take into account the indirect fixed costs or critical resource factor, which can affect the profitability of the product. Similarly, focusing on the product with the lowest variable costs may not necessarily result in the highest net income if it does not cover the indirect fixed costs or if it uses a critical resource that restricts production of other products.

When Managers Are Deciding How Much of Each Product to Sell