The profitability index for a volume trade-off decision involving products should be computed by dividing the unit contribution margin of a product by the selling price of the product.

Question

Quizplus · Accepted Answer

The profitability index is computed by dividing the present value of expected cash inflows by the initial investment. It is not calculated by dividing the unit contribution margin by the selling price of a product.

The Profitability Index for a Volume Trade-Off Decision Involving Products