If a company is considering accepting a number of jobs, but there is insufficient production capacity to do all of them, then the profitability index can be used to rank the jobs and decide which should be accepted.

Question

Quizplus · Accepted Answer

The profitability index is a ratio of the present value of expected cash inflows to the initial investment required. By calculating the profitability index for each job, the company can rank the jobs based on their potential profitability relative to the investment required. This can help in deciding which jobs to accept if there is insufficient production capacity to do all of them.

If a Company Is Considering Accepting a Number of Jobs