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The lowest contribution margin per scarce resource is the most profitable. True False

The lowest contribution margin per scarce resource is the most profitable. True False

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Answer #1
The asnwer is FALSE
In order to maximize profits when resources are limited, a company must produce the product(s) with the highest contribution margin per unit of limited resource. There are two steps involved in selecting the most profitable use of the limited resource.

Step 1: The contribution margin (CM) per unit of the scarce resource is calculated for each product by dividing the amount of resource required for each unit of product into the contribution margin.



CM per limited resource = Contribution margin per unit of product
Resource needed per unit of product

Step 2: Rank the products and select the product with the largest contribution margin per unit of limited resource. This is the product for which the company will produce the most units to maximize profits
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