Question

In a multiple-product firm, the product that has the highest contribution margin per unit will

a. generate more profit for each $1 of sales than the other products
b. have the highest contribution margin ratio
c. generate the most profit for the each unit sold
d. have the lowest variable costs per unit

Answer 1

In a multiple-product firm, the product with the highest contribution margin per unit will generate more profit for each $1 of sales than other products.

Step-by-step explanation:

In a multiple-product firm, the product that has the highest contribution margin per unit will generate more profit for each $1 of sales than the other products. This is because the contribution margin represents the portion of each unit sale that contributes to covering fixed costs and generating profit. Therefore, a higher contribution margin per unit means that a larger portion of each sale goes towards covering costs and generating profit.

For example, let's say Company A produces two products: Product X and Product Y. Product X has a contribution margin of $10 per unit, while Product Y has a contribution margin of $5 per unit. This means that for every unit sold of Product X, $10 goes towards covering costs and generating profit, whereas for every unit sold of Product Y, only $5 goes towards covering costs and generating profit. Therefore, Product X will generate more profit for each $1 of sales compared to Product Y.