Companys ability to satisfy demand the company is

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company’s ability to satisfy demand, the company is said to have a constraint.The machine or process that is limiting overall output is called the bottleneck – it is the constraint.
12-55Utilization of a Constrained ResourceFixed costs are usually unaffected in these situations, so the product mix that maximizes the company’s total contribution margin should ordinarily be selected.A company should not necessarily promote those products that have the highest unit contribution margins. Rather, total contribution margin will be maximized by promoting those products or accepting those orders that provide the highest contribution margin in relation to the constraining resource. Fixed costs are usually unaffected in these situations, so the product mix that maximizes the company’s total contribution margin should ordinarily be selected.A company should not necessarily promote those products that have the highest unit contribution margins. Rather, total contribution margin will be maximized by promoting those products or accepting those orders that provide the highest contribution margin in relation to the constraining resource.
12-56Utilization of a Constrained Resource: An ExampleEnsign Company produces two products and selected data are shown below:Product12Selling price per unit$ 60 $ 50 Less variable expenses per unit3635Contribution margin per unit24$ 15$ Current demand per week (units)2,0002,200Contribution margin ratio40%30%Processing time requiredon machine A1 per unit1.00min.0.50min.
12-57Utilization of a Constrained Resource: An ExampleMachine A1 is the constrained resource and is being used at 100% of its capacity. There is excess capacity on all other machines. Machine A1 has a capacity of 2,400 minutes per week.Should Ensign focus its efforts on Product 1 or Product 2?Machine A1 is the constrained resource and is being used at 100% of its capacity. There is excess capacity on all other machines. Machine A1 has a capacity of 2,400 minutes per week.Should Ensign focus its efforts on Product 1 or Product 2?
12-58Quick Check How many units of each product can be processed through Machine A1 in one minute?Product 1Product 2a. 1 unit 0.5 unitb. 1 unit 2.0 unitsc. 2 units 1.0 unitd. 2 units 0.5 unitHow many units of each product can be processed through Machine A1 in one minute?Product 1Product 2a. 1 unit 0.5 unitb. 1 unit 2.0 unitsc. 2 units 1.0 unitd. 2 units 0.5 unit
12-59How many units of each product can be processed through Machine A1 in one minute?Product 1Product 2a. 1 unit 0.5 unitb. 1 unit 2.0 unitsc. 2 units 1.0 unitd. 2 units 0.5 unitHow many units of each product can be processed through Machine A1 in one minute?Product 1Product 2a. 1 unit 0.5 unitb. 1 unit 2.0 unitsc. 2 units 1.0 unitd. 2 units 0.5 unitQuick Check
12-60Quick Check What generates more profit for the company, using one minute of machine A1 to process Product 1 or using one minute of machine A1 to process Product 2?

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