The Profitability Index in a Volume Trade-Off Decision Should Be

question 45

Multiple Choice

The profitability index in a volume trade-off decision should be computed by:

• A)dividing each product's contribution margin by the amount of the constrained resource used by the product.
• B)dividing each product's contribution margin by its selling price.
• C)dividing each product's selling price by the amount of the constrained resource used by the product.
• D)dividing each product's variable cost by its selling price.

---

Definitions:

Product Diversification

A strategy employed by companies to increase profitability and achieve growth by adding new products or entering into different markets that differ from the existing lineup.

Brand Extension

The strategy of using an established brand name to launch a new or modified product in a different category.

Bic Brand Name

A well-known brand that specializes in making disposable consumer products such as lighters, razors, and pens.

Innovation Strategy

An approach a company takes to encourage new ideas, creative thinking, and new project developments to gain a competitive advantage.