Which of the following statements is correct when assessing profitability with resource limitations?
A) Most businesses are not limited by market demand.
B) The most profitable result will be to maximise production of the product with the highest contribution margin per unit of the limiting factor.
C) The most profitable result will be to minimise production of the product with the highest overall contribution margin.
D) Limiting factors only relate to labour hours.

Question

Quizplus · Accepted Answer

When assessing profitability with resource limitations, the most profitable result will be achieved by maximising the production of the product with the highest contribution margin per unit of the limiting factor. This ensures that the limited resources are utilized effectively to generate maximum profit. Option A is incorrect because market demand is a significant consideration and may limit profitability. Option C is incorrect because minimising production of a product with the highest overall contribution margin may not necessarily lead to the most profitable result. Option D is incorrect because limiting factors may relate to other factors besides labour hours, such as raw materials, equipment, or space.

Which of the Following Statements Is Correct When Assessing Profitability