Asked by Michael Mocan on May 20, 2024
Verified
If a company has the capacity to produce either 10,000 units of Product A or 10,000 units of Product B; assuming fixed costs are the same,production restrictions are the same for both products,and the markets for both products are unlimited; the company should commit 100% of its capacity to the product that has the higher contribution margin per unit of operating capacity.
Contribution Margin
The amount remaining from sales revenue after variable expenses have been deducted, indicating how much contributes to covering fixed costs and generating profit.
Operating Capacity
The maximum output that a company can produce under normal circumstances over a specific period.
- Acknowledge the concept of sales mix and its impact on business strategy.
Verified Answer
WY
Wasanan YoowongMay 25, 2024
Final Answer :
True
Explanation :
This is because the product with the higher contribution margin per unit of operating capacity will generate more profit per unit produced, maximizing the company's overall profit potential.
Learning Objectives
- Acknowledge the concept of sales mix and its impact on business strategy.
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