A company that makes horsehair cowboy belts cannot meet the demand for belts due to a limited supply of artisans who know how to make the belts. To determine which models of the cowboy belts should be emphasized, the company should rank the models by dividing the unit contribution of each model by the selling price of the model.

Question

Quizplus · Accepted Answer

The company should rank the models based on their profitability, which is determined by subtracting the total cost to produce the model from its selling price. Dividing the unit contribution (selling price minus variable cost per unit) by the selling price would only indicate the profit margin percentage, but not necessarily the profitability of the model.

A Company That Makes Horsehair Cowboy Belts Cannot Meet the Demand