If the ability to sell and the amount of production facilities devoted to each of two products are equal, it is profitable to increase the sales of that product with the highest contribution margin.

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Quizplus · Accepted Answer

The contribution margin is the difference between the selling price of a product and its variable costs. A higher contribution margin means that each additional unit sold contributes more to covering fixed costs and generating profit. Therefore, focusing on the product with the highest contribution margin maximizes profitability when sales ability and production capacity are equal for both products.

If the Ability to Sell and the Amount of Production