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.

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Definitions:

Stock

A form of security that indicates the holder has proportionate ownership in the issuing corporation.

Dividends

These are distributions of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.

Shareholders

Individuals or entities that own shares in a corporation, thus having an interest in its performance and profitability.

Corporation

A legal entity that is separate from its owners, providing them with limited liability, and has the ability to own assets, incur liabilities, and sell shares.