Limiting Factor Analysis for Optimal Production

Steps:

• Identify the limiting factor: direct material shortage restricts output.
• Calculate contribution margin per unit for each product.
• Divide contribution by material usage per unit to get contribution per unit of limiting factor.
• Rank products by this ratio and allocate material to highest-ranking products first for maximum profit.

Why A is correct:

• Contribution per unit of limiting factor ranks products by profitability per scarce resource, maximizing total contribution under constraints (per limiting factor decision rule).

Why the others are wrong:

• B ignores the constraint, focusing only on output volume, not resource efficiency.
• C uses total profit, which includes fixed costs irrelevant to short-term decisions.
• D overlooks the limiting factor, treating production as unconstrained.

Final answer: A