If a company has the capacity to produce either 10,000 units of Product A or 10,000 units of Product B; assuming fixed costs are the same, production restrictions are the same for both products, and the markets for both products are unlimited; the company should commit 100% of its capacity to the product that has the higher contribution margin.

Question

Quizplus · Accepted Answer

Committing 100% of the capacity to the product with a higher contribution margin will result in higher profits for the company, assuming all other factors remain constant. This is because the contribution margin represents the amount of revenue that each unit of a product contributes towards covering fixed costs and generating profits. By focusing on the product with a higher contribution margin, the company can generate more revenue per unit and thus increase its profitability.

If a Company Has the Capacity to Produce Either 10,000