When a company has a production constraint, total contribution margin will be maximized by emphasizing the products with the highest contribution margin per unit of the constrained resource.

Question

Mason Diddock · Accepted Answer

Final Answer : True, Explanation :  When a company faces a production constraint, it cannot produce unlimited quantities of all the products it sells. To maximize total contribution margin, the company should focus on producing and selling products that generate the highest contribution margin per unit of the constrained resource (which could be labor, machine time, raw materials, or anything else that limits production capacity). By doing so, the company can earn the highest possible profit given the available resources. Therefore, the statement is true.

When a company has a production constraint, total contribution margin will be maximized by emphasizing the products with the highest contribution margin per unit of the constrained resource.

Definitions

Learning Objectives

Learning Objectives

Related questions