Question

United Industries manufactures three products in its highly automated factory. The products are all popular, with demand far exceeding the company's ability to supply the marketplace (as measured in machine hours). To maximize (short-term) operating income, management should focus on each product's:

A. Contribution margin per unit

B. Gross Margin Per Unit

c. Contribution margin ratio

d. Contribution per machine hour

e. Gross Margin Ratio

Answer 1

Answer = option d. Contribution per machine hour

As stated in the question there is a high demand for the product but company is unable to keep up with the demand as the number of machine hours available to manufacture the product is less than the machine hours required to manufacture the number as per the market demand. Hence the management has to work towards increasing the contribution per machine hour . In other words , increase its productivity so that in the available machine hours more number of units can be manufactured.

There is no need to change the margin per unit or the contribution margin( selling price - variable cost/unit). These options need to be considered only if the demand was low. In the given scenario the demand is high for the product,