When a multi-product factory operates at full capacity, decisions must be made about which products to emphasize. in making such decisions, products should be ranked based on?

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Business

Natalia Holder

24 November, 04:33

When a multi-product factory operates at full capacity, decisions must be made about which products to emphasize. in making such decisions, products should be ranked based on?

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Werner · Answer 1

When a multi-product factory operates at full capacity, decisions must be made about which products to emphasize. In making such decisions, products should be ranked based on its contribution margin per unit of the constraining resource. This happens in a company who would produce a number of products and these products would experience a constraint. This type of contribution margin is the contribution margin per unit of a product divided by the resource that is constrained in producing the product. This is a useful tool in determining how to utilize the constrained resources. These resources can be materials, facilities, labor hours or machine hours.