Question

How is the contribution margin per unit of a limited resource computed?

Answer 1

Answer

--It is very simple if you know how to calculate 'contribution margin per unit'

--But first you need to know 'per unit consumption' of that limited resource. For example, if machine hour is limited, you need to know 'machine hours required per unit'.

--Steps to calculate contribution margin per unit of a limited resource:
>Step #1: Calculate contribution margin per unit, which is Sale price per unit - variable cost per unit.
>Step #2: Divide above calculated 'contribution margin per unit' by the amount of 'limited resource consumption per unit'

--Example: Say machine hour is limited:

Working		Toaster Ovens	Bread Machines
A	Sales Price	$                         60.00	$                135.00
B	Variable Cost	$                         38.00	$                  62.00
C = A - B	Contribution margin per unit	$                         22.00	$                  73.00
D	Machine hours per unit	0.2	0.4
E = C/D	Contribution margin per machine hours	$                       110.00	$                182.50