Question

For a multi-product company with a limited resource, company-wide net income will be maximized if A...

For a multi-product company with a limited resource, company-wide net income will be maximized if

  • A :

    fixed costs equal the dollar amount of sales.

  • B :

    production capacity is prioritized to the product with the highest contribution margin per unit of limited resource.

  • C :

    production capacity is prioritized to the product with the highest unit contribution margin.

  • D :

    total costs equals sales revenue.

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Answer #1

· Correct Answer = Option ‘B’ production capacity is prioritized to the product with the highest contribution margin per unit of limited resource.

· In case when any resource is limited, the company would be most profitable if it produces and sell the product on order of highest contribution margin per unit of THAT limited resource.

· For example, if direct labor hours are limited, that product should be prioratise that earns maximum contribution margin per unit of direct labor hours per unit.

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