Prioritizing by Contribution per Scarce Resource

Steps:

• Identify the limiting factor: labor hours constrain production.
• Calculate contribution margin per unit for each product (selling price minus variable costs).
• Divide contribution per unit by labor hours required per unit to get contribution per labor hour.
• Rank products by highest contribution per labor hour and allocate all available hours to top-ranked products first.

Why C is correct:

• In limiting factor analysis, profit maximization requires ranking by contribution per unit of the scarce resource (labor hour), as it shows efficiency in using the constraint to generate profit.

Why the others are wrong:

• A: Break-even analysis determines sales volume to cover costs but ignores resource allocation for profit maximization.
• B: Contribution per unit measures profitability per item but overlooks varying labor requirements, leading to inefficient allocation.
• D: Identical to B, so same flaw in ignoring the labor constraint.

Final answer: C