In a manufacturing environment, the short-term profit-maximizing decision would be to:
A) Maximize gross profit.
B) Minimize total variable cost of all units produced.
C) Minimize fixed overhead (i.e., fixed manufacturing support) cost per unit by producing to capacity.
D) Maximize total contribution margin for units produced/sold.
E) Maximize total sales revenue for units produced/sold.

Question

Quizplus · Accepted Answer

Maximizing the total contribution margin (sales revenue minus variable costs) is the best choice in a manufacturing environment as it takes into account the costs associated with producing each unit and ensures that the profits generated are sufficient to cover both fixed and variable costs in the long run. Minimizing variable costs or fixed overhead costs per unit may lead to short-term gains but can result in lower quality products and decreased competitiveness over time. Maximizing gross profit or total sales revenue may also be short-sighted as it does not take into account the costs associated with producing the goods.

In a Manufacturing Environment, the Short-Term Profit-Maximizing Decision Would Be