The opportunity cost of using one unit of the constrained resource in a volume trade-off decision is equal to:
A)the profitability index for the company's most profitable existing product.
B)the profitability index for the company's least profitable product-even if none of the product is currently being made.
C)the profitability index for the product whose production would be cut back if necessary.
D)the profitability index of the product with the greatest sales.

Question

Quizplus · Accepted Answer

The opportunity cost of using one unit of the constrained resource should be equal to the profitability index for the product whose production would be cut back if necessary. This is because in a volume trade-off decision, the company needs to determine which product to produce more of and which to produce less of, and the opportunity cost is the benefit that is foregone by choosing one alternative over another. Therefore, by choosing to produce more of one product, the company is effectively choosing to produce less of another, and the profitability index for the product that would be cut back is the relevant cost to consider.

The Opportunity Cost of Using One Unit of the Constrained