If a company has the capacity to produce either 10,000 units of Product X or 10,000 units of Product Y; assuming fixed costs remain constant, 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 its capacity to the product with the higher contribution margin will maximize the company's profits. Even if the market for Product X or Product Y is unlimited, focusing on the one with the higher contribution margin will ensure that the company is making the most profit per unit produced.

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