Limiting-factor decision picks the alternative that maximises:
ASales per unit
BContribution per unit of limiting factor
CProfit margin per rupee of sales
DVariable cost per unit
Answer & Solution
Correct answer: B. Contribution per unit of limiting factor
1. When a resource is limited (e.g. machine hours, material), the firm should maximise return per unit of that scarce resource.
2. The relevant ranking factor is contribution per unit of the limiting factor.
3. Sales per unit or margin per rupee ignore the scarcity of the constraining resource.
4. Hence the correct criterion is contribution per unit of limiting factor.
_Source: ICAI BoS Inter Paper 3, Ch 14 "Marginal Costing", §14.9 ¶2_
Related questions
Absorption costing values inventory at:Marginal costing assumes fixed cost remains constant:Make-or-buy decision prefers buying when the outside price is:Angle of incidence is the angle between:Cash break-even point uses:Composite P/V ratio for a mix of Product A (P/V 50%, share 40%) and B (P/V 30%, share 60%)Continuing same data: MOS in rupees and as a percentage of sales:Selling price ₹40, variable cost ₹25, fixed cost ₹3,00,000. MOS at actual sales of 30,000