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Parinita Raina
on Oct 10, 2024

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When a company has a production constraint, the product with the lowest contribution margin per unit of the constrained resource should usually be given highest priority.

Production Constraint

Any factor that limits the volume or type of production a company can achieve, such as equipment capacity or availability of materials.

Contribution Margin

The amount of revenue from sales that exceeds the variable costs associated with producing a product, indicating how much revenue contributes towards covering fixed costs and profit.

Constrained Resource

A limited resource in a production or project environment that restricts the output or progress of operations.

  • Understand the principle of contribution margin and how it is utilized in making decisions regarding production limitations.
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Marija LosicOct 11, 2024
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