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ACTG2020_Week5 2014 Ch12CMD (1)

Lo 2 key terms and concepts when a limited resource

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Unformatted text preview: is said to have a constraint. The machine or process that is limiting overall output is called the bottleneck – it is the constraint. LO 3 Utilization of a Constrained Resource When a constraint exists, a company should select a product mix that maximizes the total contribution margin earned since fixed costs usually remain unchanged. A company should not necessarily promote those products that have the highest unit contribution margin. Rather, it should promote those products that earn the highest contribution margin in relation to the constraining resource. LO 3 Utilization of a Constrained Resource: An Example Ensign Company produces two products and selected data are shown below: LO 3 Utilization of a Constrained Resource Machine A1 is the constrained Machine A1 is the constrained resource and is being used at 100% resource and is being used at 100% off its capacity. o its capacity. There is excess capacity on all other There is excess capacity on all other machines. machines. Machine A1 has a capacit...
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