When Assessing Profitability When There Are Resource Limitations Which Statement

question 10

Multiple Choice

When assessing profitability when there are resource limitations which statement is not correct?

• A)For some businesses sales are not limited by market demand but by production limitations
• B)The most profitable result will be to maximise production of the product with the highest contribution margin per unit of the limiting factor
• C)The most profitable result will be to minimise production of the product with the highest overall contribution margin
• D)Limiting factors could relate to labour,space,materials or equipment

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Definitions:

Departmental Predetermined Rates

Rates used to allocate departmental overhead costs, established in advance based on expected costs and activity levels.

Machine-Hours

A measurement unit representing the operational time of a machine, typically used in manufacturing to allocate costs based on usage.

Selling Price

Selling Price is the amount a buyer pays to purchase an item or service from a seller.

Predetermined Overhead Rate

An estimated charge used to apply manufacturing overhead to individual products or job orders, calculated in advance of the period.