Question

To maximize profit when a constrained resource exists, management should produce the sales mix that has the highest contribution margin per unit of scarce resource. true or false

Answer 1

Answer: True

Step-by-step explanation:

To maximize profit when a constrained resource exists, management should produce the sales mix which has the highest contribution margin per unit of scarce resource.

For example, if the contribution per unit of product A and product B are 15 and 20, with labor hour required for product A 1 hour and that of product B 2 hours and the contribution margin for product you for product A is $15 and for product B is $10.

Then, product A has higher contribution margin despite using less labor hour.