Ebright Corporation would like to determine the relative profitability of the company's products for purposes of making volume trade-off decisions. For example, the selling price of product H25Z is $50.00 and its unit variable cost is $30.00. One unit of the product requires 2 ounces of the constrained resource. Monthly sales are 6,300 units. What is the profitability index for product H25Z?
A)$126,000
B)$25.00 per ounce
C)0.40
D)$10.00 per ounce

Question

Quizplus · Accepted Answer

The profitability index is calculated as the contribution margin per unit divided by the amount of the constrained resource required per unit. The contribution margin per unit for product H25Z is $50 - $30 = $20. Since each unit requires 2 ounces of the constrained resource, the profitability index is $20 / 2 = $10.00 per ounce.

Ebright Corporation Would Like to Determine the Relative Profitability of the Company's