When a scarce resource limits production, which measure is most useful for selecting the product mix?
Correct answer: C. Contribution per unit of the limiting factor
- A. Selling price per unit only
- B. Fixed cost per unit of the product
- C. Contribution per unit of the limiting factor
- D. Total overhead per department
Explanation
A limiting factor restricts the level of activity, so products should be compared by contribution earned per unit of that scarce resource. Contribution per ordinary product unit can give a misleading ranking when resource requirements differ.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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