How is contribution per unit of a constraint used to determine product mix when there is a limiting factor?

How is contribution per unit of a constraint used to determine product mix when there is a limiting factor?

• A. Use total profit per product.
• B. Calculate contribution per unit of the constraint for each product; rank by highest contribution per unit of the constraint.
• C. Calculate contribution margin per unit of product; rank by highest margin.
• D. Use unit volume alone.

Answer: (B)

When a limiting factor exists, you want to measure how effectively each product uses that scarce resource. For each product, calculate contribution per unit of the constrained resource by taking the contribution per unit of that product and dividing it by the amount of the constrained resource required to produce one unit. Rank products by this figure and allocate the limited resource to the highest first, continuing until the constraint is fully used. This approach maximizes total contribution given the bottleneck. Using total profit per product ignores how much of the constrained resource each unit consumes, which can mislead you into over- or under-allocating the scarce factor. Contribution margin per unit of product ignores resource usage, so it may misrank products. Unit volume alone disregards profitability entirely and the resource constraint, so it’s not informative for a mix with a bottleneck.

When a limiting factor exists, you want to measure how effectively each product uses that scarce resource. For each product, calculate contribution per unit of the constrained resource by taking the contribution per unit of that product and dividing it by the amount of the constrained resource required to produce one unit. Rank products by this figure and allocate the limited resource to the highest first, continuing until the constraint is fully used. This approach maximizes total contribution given the bottleneck.

Using total profit per product ignores how much of the constrained resource each unit consumes, which can mislead you into over- or under-allocating the scarce factor. Contribution margin per unit of product ignores resource usage, so it may misrank products. Unit volume alone disregards profitability entirely and the resource constraint, so it’s not informative for a mix with a bottleneck.