Question 7.RQ.4: If there is a scarce resource that is restricting sales, how...
If there is a scarce resource that is restricting sales, how will the business maximise its profit? Explain the logic of the approach that you have identified for maximising profit.
In the face of a restricting scarce resource, profit will be maximised by using the scarce resource on producing the product or service where the contribution per unit of the scarce resource is maximised.
This means that the contribution per unit of the scarce resource (for example, hour of scarce labour or unit of scarce raw material) for each competing product or service needs to be identified. It is then a question of allocating the scarce resource to the product or service that provides the highest contribution per unit of the particular scarce resource. The logic of this approach is that the scarce resource is allocated to the activity that uses it most effectively, in terms of contribution and, therefore, profit.