When a company has a scarce resource, they should allocate it all to the product that will provide the highest contribution margin per unit produced.

Question

Quizplus · Accepted Answer

While allocating scarce resources to the product with the highest contribution margin per unit might seem optimal, it's important to consider the total contribution margin. The best allocation often maximizes the total contribution margin across all products, which might involve distributing resources among several products, not just the one with the highest per-unit margin.

When a Company Has a Scarce Resource, They Should Allocate