When making volume trade-off decisions managers should focus on which of the following?

Question

BlackTom AI · Accepted Answer

Contribution margin per unit of the constraining resource is the correct focus because it measures incremental profit earned per unit of the scarce input (the bottleneck).

1) Relevant knowledge points and concepts
- Contribution margin (CM) = Sales price − Variable costs; it shows the incremental profit available to cover fixed costs and add to operating profit.  
- Constraining (scarce) resource = any limiting input (machine hours, labor hours, floor space). When capacity is limited, profit depends on how much CM each product yields per unit of that scarce resource.  
- Gross margin (sales − cost of goods sold) often includes allocated fixed manufacturing costs and is not useful for short-run incremental decisions.

2) Step-by-step reasoning
- If a manager must choose among products when a resource is scarce, the correct ranking criterion is CM per unit of the constraining resource (e.g., CM per machine hour).  
- Compute CM per unit for each product, then divide by the resource usage per unit to get CM per resource unit. Produce more of the product with higher CM per resource unit.

3) Example calculation (all intermediate steps)
- Product A: Price $120, Variable cost $75 → CM = 120 − 75 = $45. Resource usage = 3 hours → CM per hour = 45 / 3 = $15/hour.  
- Product B: Price $90, Variable cost $50 → CM = 90 − 50 = $40. Resource usage = 1 hour → CM per hour = 40 / 1 = $40/hour.  
- Since Product B yields $40 per scarce hour vs. $15 for A, prioritize B.

4) Why the correct answer is correct
- CM per unit of the constraining resource directly links incremental profit to the scarce input, which determines how best to allocate limited capacity to maximize overall profit.

5) Why other options are incorrect
- "Contribution margin per unit": ignores differing resource usage, so it can mislead when products consume different amounts of the scarce resource.  
- "Gross margin per unit" and "Gross margin per unit of the constraining resource": gross margin includes allocated fixed/manufacturing overhead and is not appropriate for short-run allocation decisions based on incremental profit.

6) Conclusion
- Therefore, managers should focus on contribution margin per unit of the constraining resource. This matches the provided correct answer: Contribution margin per unit of the constraining resource.

When making volume trade-off decisions managers should focus on which of the following?单项选择题

类似问题

EA 4 - Contribution margin ratio equals... Enter your answer as a whole number.

When fixed costs increase and all other variables remain unchanged, the contribution margin will ________.

HarvestCo can produce an additional 5,000 units using idle capacity. Variable cost per unit is $6. The special order price is $7.50. No additional fixed costs are incurred.What is the total contribution margin from the special order?

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