BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

Solutions

Chapter
Section
BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
15 views

When a company faces a production constraint or scarce resource (e.g., only a certain number of machine hours are available), it is important to

  1. a. produce the product with the highest contribution margin in total.
  2. b. produce the product with the lowest full manufacturing cost.
  3. c. produce the product with the highest contribution margin per unit of scarce resource.
  4. d. produce the product with the highest contribution margin per unit.
  5. e. The constraint is not relevant to the production problem.

To determine

Identify the option which is important when a company faces a production constraint or scarce resources.

Explanation

Contribution Margin:

Contribution margin can be defined as the amount obtained after deducting variable expense from sales revenue. It means the amount of sales left after covering the variable expenses.

c.

The company should produce the product which has the highest contribution margin per unit of scarce resources when it is facing the production constraint or scarce resources. The company should transfer all its resources to the product having the highest margin per unit because it will increase the amount of operating income. Therefore, this option is correct.

a.

The company should not produce the product which has the highest contribution margin in total when it is facing the production constraint or scarce resources...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

What are closing entries, and what is their purpose?

Intermediate Accounting: Reporting And Analysis

Describe how research and development leads to new products.

Foundations of Business (MindTap Course List)

How should the capital structure weights used to calculate the WACC be determined?

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)