Cost Accounting Quiz: Cm Per Constraint Unit
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Cm Per Constraint UnitQuestion 1 of 18

A company produces two products, Delta and Gamma, using a constrained resource. Delta has a contribution margin per unit of $120 and uses 3 hours of the resource. Gamma has a contribution margin per unit of $150 and uses 5 hours of the resource.

The company is considering outsourcing the production of Gamma to a reliable supplier for a price of $200 per unit. The variable cost to produce Gamma internally is $80 per unit. If outsourced, the resources would be used to produce Delta. What is the net financial impact per unit of outsourcing Gamma?

A cost of $120 per unit.
A benefit of $30 per unit.
A cost of $50 per unit.
A benefit of $80 per unit.
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Cost Accounting Quiz

Cost Accounting Quiz: Cm Per Constraint Unit

Practice Cm Per Constraint Unit in Cost Accounting with focused quiz questions that help you check what you know, review explanations, and build confidence with test-style prompts.

What this quiz covers

This quiz focuses on Cm Per Constraint Unit, giving you a quick way to practice the rules, question types, and explanations that matter most for Cost Accounting.

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Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

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Question 1

A company produces two products, Delta and Gamma, using a constrained resource. Delta has a contribution margin per unit of $120 and uses 3 hours of the resource. Gamma has a contribution margin per unit of $150 and uses 5 hours of the resource.

The company is considering outsourcing the production of Gamma to a reliable supplier for a price of $200 per unit. The variable cost to produce Gamma internally is $80 per unit. If outsourced, the resources would be used to produce Delta. What is the net financial impact per unit of outsourcing Gamma?

  1. A cost of $120 per unit.
  2. A benefit of $30 per unit.
  3. A cost of $50 per unit.
  4. A benefit of $80 per unit. (correct answer)
Explanation: This is a make-or-buy decision involving an opportunity cost. First, calculate the direct financial impact of buying Gamma. Cost to buy is $200. Cost to make (variable cost) is $80. The extra direct cost of buying is $200 - $80 = $120. Second, calculate the opportunity benefit. Outsourcing Gamma frees up 5 hours of the resource. This resource can be used to make Delta. The profitability of Delta per resource hour is $120 CM / 3 hours = $40/hour. The opportunity benefit from the 5 freed-up hours is 5 hours * $40/hour = $200. Finally, calculate the net impact: Opportunity Benefit - Extra Direct Cost = $200 - $120 = $80. There is an $80 benefit per unit from outsourcing Gamma and using the freed resources to make Delta.

Question 2

FlexiCorp produces two types of ergonomic chairs, the Standard and the Deluxe. The company is constrained by the total available hours of skilled assembly labor. Data for the two products is as follows:

  • Standard: Contribution margin per unit of $120; requires 1.5 labor hours per unit.
  • Deluxe: Contribution margin per unit of $150; requires 2.0 labor hours per unit.

The company currently prioritizes the Standard chair. Management is considering a price increase for the Deluxe chair. Assuming variable costs and labor time per unit remain unchanged, what is the minimum price increase per Deluxe chair needed to make it equally preferable to the Standard chair from a resource allocation perspective?

  1. $10 (correct answer)
  2. $20
  3. $30
  4. $40
Explanation: First, determine the benchmark contribution margin per constrained resource unit (labor hour) from the prioritized product, Standard. CM per hour for Standard = $120 / 1.5 hours = $80/hour. For the Deluxe chair to be equally preferable, it must also generate $80/hour. Currently, Deluxe generates $150 / 2.0 hours = $75/hour. To reach the $80/hour target, the total CM for Deluxe must be $80/hour * 2.0 hours = $160. The required increase in contribution margin per unit is $160 - $150 = $10. Since variable costs are unchanged, a $10 increase in contribution margin requires a $10 price increase.

Question 3

A company has a single constrained resource: specialized machine time. It manufactures two products, Product A and Product B. The company has a policy of prioritizing the product with the highest contribution margin per machine minute.

Product A has a contribution margin ratio of 40% and sells for $200 per unit. It requires 10 machine minutes per unit. Product B has variable costs of $150 per unit and requires 12 machine minutes per unit. To be prioritized over Product A, the selling price of Product B must be at least:

  1. $246 (correct answer)
  2. $250
  3. $230
  4. $264
Explanation: First, calculate the contribution margin (CM) per machine minute for Product A to establish the profitability benchmark. CM for A = $200 * 40% = $80/unit. CM per minute for A = $80 / 10 min = $8/min. For Product B to be prioritized, its CM per minute must be greater than or equal to $8/min. The required CM per unit for B is $8/min * 12 min/unit = $96. The selling price is the sum of the required contribution margin and the variable costs. Minimum Selling Price for B = Variable Costs + Required CM = $150 + $96 = $246.

Question 4

A company manufactures products R, S, and T. A single machine, with a capacity of 3,000 hours per month, is the only binding constraint. The company can sell all units produced.

Product R generates a contribution margin of $12 per unit and requires 0.5 hours of machine time. Product S has a selling price of $50, variable costs of $20, and requires 1.25 hours of machine time. Product T generates a contribution margin of $32 per unit. To be the least profitable option in terms of resource utilization, Product T must require more than how many hours of machine time?

  1. 1.33 hours (correct answer)
  2. 1.28 hours
  3. 1.07 hours
  4. 0.75 hours
Explanation: First, calculate the contribution margin (CM) per machine hour for products R and S. R: $12 / 0.5 hr = $24/hr. S: CM = $50 - $20 = $30. CM per hour = $30 / 1.25 hr = $24/hr. Both R and S have the same profitability per hour. For Product T to be the least profitable option, its CM per hour must be less than $24/hr. We can set up an inequality: CM_T / Hours_T < $24/hr. Substituting the known CM for T: $32 / Hours_T < $24. Solving for Hours_T: Hours_T > $32 / $24. Hours_T > 1.333... hours. Therefore, Product T must require more than 1.33 hours to be the least profitable choice.

Question 5

Circuit Corp. manufactures two components, C1 and C2, which are both processed through a single, constrained soldering station. The station has a capacity of 2,000 hours per year. Circuit Corp. can sell an unlimited number of C1 and C2.

C1 has a contribution margin of $45 per unit and uses 15 minutes of station time. C2 has a contribution margin of $90 per unit and uses 30 minutes of station time. A new process is discovered that can reduce the station time for C1 by 20% or the station time for C2 by 10%. Which process improvement should be implemented to maximize annual profit, and what is the incremental contribution margin from that choice?

  1. Improve C1; incremental CM of $90,000 (correct answer)
  2. Improve C2; incremental CM of $20,000
  3. Improve C1; incremental CM of $18,000
  4. Improve C2; incremental CM of $36,000
Explanation: First, calculate the baseline CM per hour. C1: 15 min = 0.25 hr. CM/hr = $45 / 0.25 = $180/hr. C2: 30 min = 0.50 hr. CM/hr = $90 / 0.50 = $180/hr. Both are equally profitable. Current total annual CM = 2,000 hrs * $180/hr = $360,000. Now evaluate the improvements. Option 1 (Improve C1): New time for C1 = 15 min * (1 - 0.20) = 12 min (0.2 hr). New CM/hr for C1 = $45 / 0.2 hr = $225/hr. C2 remains at $180/hr. The company would switch to producing only C1. New total CM = 2,000 hrs * $225/hr = $450,000. Incremental CM = $450,000 - $360,000 = $90,000. Option 2 (Improve C2): New time for C2 = 30 min * (1 - 0.10) = 27 min (0.45 hr). New CM/hr for C2 = $90 / 0.45 hr = $200/hr. C1 remains at $180/hr. The company would switch to producing only C2. New total CM = 2,000 hrs * $200/hr = $400,000. Incremental CM = $400,000 - $360,000 = $40,000. Comparing the incremental gains, improving C1 yields a higher profit increase ($90,000 > $40,000).

Question 6

A company manufactures a component internally at a variable cost of $50 per unit. Manufacturing the component requires 0.2 hours on a machine that is the company's primary production constraint. The company can purchase the same component from an external supplier for $62 per unit.

If the company buys the component, the freed-up machine time can be used to produce other products that generate, on average, $70 of contribution margin per machine hour. What is the financial advantage or disadvantage per unit of buying the component externally?

  1. $26 disadvantage per unit
  2. $12 disadvantage per unit
  3. $14 advantage per unit
  4. $2 advantage per unit (correct answer)
Explanation: This is a make-or-buy decision involving a constrained resource. First, calculate the net cost of purchasing externally per unit, ignoring the opportunity cost. Purchase cost (62)−Internalvariablecost(62) - Internal variable cost (50) = $12 extra cost to buy. Next, calculate the opportunity benefit of freeing up the machine time. The time freed up is 0.2 hours per component. The benefit generated by this time is 0.2 hours * $70/hour = $14. The net financial impact is the opportunity benefit minus the extra cost of buying: $14 - $12 = $2 advantage per unit. Therefore, it is financially advantageous to buy the component.

Question 7

A company produces two products, Gizmo and Widget, which are processed on a single machine with a capacity of 4,000 hours per month. The contribution margin is $20 per Gizmo and $36 per Widget. A Gizmo requires 0.5 hours of machine time, and a Widget requires 1.2 hours of machine time.

Assuming the company's objective is to maximize profit, what is the opportunity cost of producing one Widget?

  1. $24
  2. $36
  3. $40
  4. $48 (correct answer)
Explanation: The opportunity cost of producing one product is the contribution margin of the alternative product that is forgone. First, determine which product is more profitable per machine hour. Gizmo: $20 / 0.5 hr = $40/hr. Widget: $36 / 1.2 hrs = $30/hr. Gizmo is the more profitable product. Therefore, producing a Widget means forgoing the production of Gizmos. To produce one Widget requires 1.2 hours of machine time. In those 1.2 hours, the company could have generated a contribution margin of 1.2 hours * $40/hour (from Gizmos) = $48. Thus, the opportunity cost of producing one Widget is $48.

Question 8

A company manufactures two products, Standard and Premium. A single constrained resource, testing hours, limits production. Standard models require 10 minutes of testing, while Premium models require 15 minutes.

The contribution margin per testing hour is $120 for the Standard model and $100 for the Premium model. The company currently produces only the Standard model. If the company shifts 100 testing hours from producing Standard models to producing Premium models, what will be the change in total contribution margin?

  1. $2,000 increase
  2. $2,000 decrease (correct answer)
  3. $12,000 decrease
  4. $10,000 increase
Explanation: The decision is based on comparing the profitability per hour of the constrained resource. The Standard model is more profitable, generating $120 per testing hour compared to the Premium model's $100 per testing hour. Shifting production from a more profitable product to a less profitable one will result in a decrease in total contribution margin. The difference in profitability is $120/hour - $100/hour = 20/hour.Since100hoursarebeingshifted,thetotalchangeincontributionmarginwillbe100hours∗(20/hour. Since 100 hours are being shifted, the total change in contribution margin will be 100 hours * (20/hour decrease) = $2,000 decrease.

Question 9

A company is planning its production for the next period. It produces two products, A and B, which have the following characteristics:

  • Product A: Contribution Margin of $40/unit, requires 2 hours on Machine Z.
  • Product B: Contribution Margin of $30/unit, requires 1 hour on Machine Z. Machine Z's capacity is the only constraint. The company must produce a minimum of 100 units of A due to a contractual obligation.

Given the constraint and the contractual obligation, which statement best describes the company's optimal production strategy?

  1. Alternate between A and B production to balance the product mix.
  2. Maximize production of B only, ignoring contractual obligations.
  3. Produce the required 100 units of A, then maximize additional A production.
  4. Produce the required 100 units of A, then allocate remaining capacity to B. (correct answer)
Explanation: First, determine the profitability per unit of the constrained resource (Machine Z hours). Product A: $40 / 2 hours = $20/hour. Product B: $30 / 1 hour = $30/hour. Product B is more profitable per machine hour. A rational company would want to produce as much of B as possible. However, the contractual obligation for 100 units of A must be met. This is a fixed requirement that must be satisfied before any discretionary optimization can occur. The company should first allocate resources to produce the 100 units of A. After that obligation is met, any remaining machine capacity should be dedicated to the most profitable product per hour, which is Product B.

Question 10

A firm manufactures two products, Lux and Basic. A constrained resource, finishing hours, limits production. There are 2,000 finishing hours available. Demand for Lux is 300 units, and for Basic is 1,000 units.

  • Lux: CM per unit = $200; Finishing time = 4 hours/unit.
  • Basic: CM per unit = $80; Finishing time = 1 hour/unit.

By how much would the firm's total contribution margin decrease if management incorrectly prioritized production based on contribution margin per unit instead of contribution margin per finishing hour?

  1. $2,000
  2. $4,000
  3. $6,000 (correct answer)
  4. $8,000
Explanation: First, determine the correct priority. Lux: CM/hour = $200 / 4 hrs = $50/hr. Basic: CM/hour = $80 / 1 hr = $80/hr. Correct priority is Basic. Correct Plan: Produce 1,000 units of Basic, using 1,000 hours. Remaining hours = 2,000 - 1,000 = 1,000 hours. Use these to produce 1,000 / 4 = 250 units of Lux. Total CM = (1,000 × $80) + (250 × $200) = $80,000 + $50,000 = $130,000. Incorrect Plan (prioritize Lux based on CM/unit): Produce 300 units of Lux, using 300 × 4 = 1,200 hours. Remaining hours = 2,000 - 1,200 = 800 hours. Use these to produce 800 units of Basic. Total CM = (300 × $200) + (800 × $80) = $60,000 + $64,000 = $124,000. Difference = $130,000 - $124,000 = $6,000.

Question 11

A company produces Products X, Y, and Z. The single constrained resource is labor hours. Product X has a contribution margin of $100 per unit and requires 4 labor hours. Product Y has a contribution margin of $75 per unit and requires 3 labor hours. Product Z has a contribution margin of $60 per unit and requires 2 labor hours.

How should the company rank the products for production priority to maximize profit?

  1. X, Y, Z (based on contribution margin per unit)
  2. Z, Y, X (based on labor hours per unit)
  3. Z, Y, X (based on contribution margin per labor hour) (correct answer)
  4. The ranking is the same whether based on contribution margin per unit or per labor hour.
Explanation: To maximize profit when a resource is constrained, products should be ranked based on their contribution margin per unit of the constrained resource. We must calculate the contribution margin per labor hour for each product. Product X: $100 / 4 hours = $25/hour. Product Y: $75 / 3 hours = $25/hour. Product Z: $60 / 2 hours = $30/hour. Based on these calculations, Product Z is the most profitable (30/hr),whileProductsXandYareequallyprofitable(30/hr), while Products X and Y are equally profitable (25/hr) and less profitable than Z. The correct ranking is Z first, followed by Y and X in any order. The choice Z, Y, X reflects this.

Question 12

Terra Firma Inc. produces two types of fertilizer, Grow-Fast and Lush-Lawn. The availability of a key raw material, nitrogen concentrate, is limited to 4,000 kg per month. Grow-Fast uses 4 kg of concentrate per bag, while Lush-Lawn uses 5 kg per bag. Grow-Fast contributes $24 per bag and Lush-Lawn contributes $25 per bag.

The company has committed to a contract to supply 200 bags of Lush-Lawn each month. After fulfilling this contract, how should the remaining nitrogen concentrate be allocated to maximize profit?

  1. Allocate all remaining concentrate to producing Lush-Lawn because it has a higher contribution margin per bag.
  2. Allocate all remaining concentrate to producing Grow-Fast because it is more profitable per kilogram of concentrate. (correct answer)
  3. Allocate the remaining concentrate equally between the two products to maintain a balanced product mix.
  4. Allocate all remaining concentrate to producing Lush-Lawn because it is the contractually required product.
Explanation: First, determine the contribution margin per unit of the constrained resource (kg of concentrate). Grow-Fast: $24 / 4 kg = $6/kg. Lush-Lawn: $25 / 5 kg = $5/kg. Grow-Fast is more profitable in terms of the constraint. The company must first fulfill its contract for 200 bags of Lush-Lawn, which uses 200 bags * 5 kg/bag = 1,000 kg of concentrate. This leaves 4,000 kg - 1,000 kg = 3,000 kg of concentrate. To maximize profit, this remaining resource should be allocated to the most profitable product per unit of constraint, which is Grow-Fast.

Question 13

A company is currently producing its only product at full capacity, which is limited by machine hours. The product has a contribution margin of $80 per unit and requires 0.4 machine hours to produce.

The company receives a special order to produce a new, customized product for a client. This new product would require 0.5 machine hours per unit and has direct variable costs of $120 per unit. To accept this order, the company would have to reduce production of its regular product. What is the minimum selling price per unit the company should charge for the special order?

  1. $120
  2. $200
  3. $220 (correct answer)
  4. $300
Explanation: The minimum selling price for the special order must cover its own variable costs plus the opportunity cost of using the constrained resource. First, calculate the contribution margin per machine hour for the regular product, which represents the opportunity cost. Opportunity cost per hour = $80 CM / 0.4 hours = $200/hour. The special order requires 0.5 machine hours. Therefore, the opportunity cost for one unit of the special order is 0.5 hours * $200/hour = 100.Theminimumpricemustcoverthevariablecosts(100. The minimum price must cover the variable costs (120) and this opportunity cost ($100). Minimum Price = $120 + $100 = $220.

Question 14

A company manufactures two products, Alpha and Beta. Production capacity is limited by machine hours, with a total of 6,500 hours available per period. The company can sell as many units of each product as it can produce.

Product Alpha has a selling price of $100 and variable costs of $60 per unit, and it requires 1.0 machine hour per unit. Product Beta has a selling price of $150 and variable costs of $90 per unit, and it requires 2.0 machine hours per unit. Maximum market demand is 3,000 units for Alpha and 2,000 units for Beta. What is the maximum total contribution margin the company can generate in the period?

  1. $220,000
  2. $225,000 (correct answer)
  3. $240,000
  4. $260,000
Explanation: First, calculate the contribution margin (CM) per unit and per machine hour for each product. Alpha: CM/unit = $100 - $60 = $40; CM/hour = $40 / 1.0 hr = $40/hr. Beta: CM/unit = $150 - $90 = $60; CM/hour = $60 / 2.0 hrs = $30/hr. Since Alpha has a higher CM per machine hour, it should be prioritized. The company should produce Alpha up to its market demand of 3,000 units, which uses 3,000 hours. The remaining 3,500 hours (6,500 - 3,000) are used for Beta, producing 1,750 units (3,500 hrs / 2.0 hrs/unit). The total contribution margin is (3,000 Alpha units × $40/unit) + (1,750 Beta units × $60/unit) = $120,000 + $105,000 = $225,000.

Question 15

A company can produce two products, J and K. The primary constraint is the kilograms of a rare material. Product J requires 2 kg of the material and has a contribution margin of $30. Product K requires 3 kg of the material and has a contribution margin of $42.

The company has the option to use a lower-grade material for Product K. Using it would decrease Product K's variable cost by $3 per unit but would increase its material requirement to 4 kg per unit. Should the company make this change?

  1. Yes, because the contribution margin per unit of Product K increases.
  2. No, because the contribution margin per kg of material for Product K decreases. (correct answer)
  3. Yes, because Product K becomes more profitable per kg of material than Product J.
  4. No, because any change that increases the use of a constrained resource is always unfavorable.
Explanation: The decision should be based on the contribution margin per kg of the constrained material. Original situation: Product J: $30 / 2 kg = $15/kg. Product K: $42 / 3 kg = $14/kg. Product J is currently superior. Proposed change for Product K: New CM for K = $42 (original CM) + $3 (cost savings) = $45. New material requirement for K = 4 kg. New CM per kg for K = $45 / 4 kg = $11.25/kg. While the contribution margin per unit of K increases from $42 to $45, its contribution margin per unit of the constrained resource decreases from $14/kg to $11.25/kg, making it an even less effective use of the rare material. Therefore, the company should not make the change.

Question 16

A company produces two products, X and Y, and is constrained by available labor hours. Product X has a contribution margin of $50 per unit and requires 2 labor hours. Product Y has a contribution margin of $60 per unit and requires 3 labor hours.

If the company mistakenly prioritizes production based on the highest contribution margin per unit instead of contribution margin per labor hour, what is the opportunity cost for every labor hour that is misallocated?

  1. $5.00 (correct answer)
  2. $10.00
  3. $20.00
  4. $25.00
Explanation: First, calculate the contribution margin (CM) per labor hour for each product. CM per hour for X = $50 / 2 hours = $25/hour. CM per hour for Y = $60 / 3 hours = 20/hour.ThecorrectstrategyistoprioritizeProductX.Theincorrectstrategy,basedonCMperunit,wouldprioritizeProductY(20/hour. The correct strategy is to prioritize Product X. The incorrect strategy, based on CM per unit, would prioritize Product Y (60 > $50). The opportunity cost of this error is the difference in profitability per constrained resource unit. For every hour misallocated to producing Y instead of X, the company earns $20 instead of the $25 it could have earned. Therefore, the opportunity cost is $25 - $20 = $5.00 per labor hour.

Question 17

Titan Manufacturing uses specialized molding equipment operating 2,800 hours monthly. The equipment produces two products: Deluxe (4 hours per unit, $180 CM) and Premium (6 hours per unit, $240 CM). Monthly demand is 400 units for Deluxe and 250 units for Premium. A customer offers to purchase an additional 100 Premium units at a reduced price that would generate only $200 contribution margin per unit. Should Titan accept this special order?

  1. Accept the order; the $200 CM per unit exceeds the $180 CM of displaced Deluxe units, generating net benefit of $2,000
  2. Reject the order; the $200 CM per unit is less than Premium's normal $240 CM, resulting in opportunity cost of $4,000
  3. Accept the order; the $33.33 CM per hour for special order exceeds $30 CM per hour for displaced Deluxe production
  4. Reject the order; the $33.33 CM per hour for special order is less than $45 CM per hour for displaced Deluxe production (correct answer)
Explanation: First, check capacity usage: Regular production needs (400 × 4) + (250 × 6) = 1,600 + 1,500 = 3,100 hours. This exceeds 2,800 available hours, so capacity is constrained. Calculate CM per hour: Deluxe = $180÷4=$45\$180 ÷ 4 = \$45; Premium = $240÷6=$40\$240 ÷ 6 = \$40; Special order = $200÷6=$33.33\$200 ÷ 6 = \$33.33. Since Deluxe has higher CM per constraint hour (45),itshouldreceivepriority.ThespecialorderCMperhour(45), it should receive priority. The special order CM per hour (33.33) is less than Deluxe CM per hour ($45), so accepting would displace higher-value production. Reject the order.

Question 18

Zenith Manufacturing produces three products using a shared machine that operates 2,400 hours monthly. Product A requires 0.5 hours per unit with a contribution margin of $12 per unit. Product B requires 1.2 hours per unit with a contribution margin of $18 per unit. Product C requires 0.8 hours per unit with a contribution margin of $16 per unit. Market demand exceeds capacity for all products. If the company currently produces equal quantities of each product but wants to maximize profit, which product should receive the highest production priority and what is the monthly profit increase from optimal reallocation?

  1. Product A should receive highest priority; monthly profit increase is $9,600 from reallocating all capacity to Product A only (correct answer)
  2. Product A should receive highest priority; monthly profit increase is $19,200 from reallocating all capacity to Product A only
  3. Product C should receive highest priority; monthly profit increase is $14,400 from reallocating all capacity to Product C only
  4. Product B should receive highest priority; monthly profit increase is $7,200 from reallocating all capacity to Product B only
Explanation: First, calculate contribution margin per constraint hour: Product A = $12÷0.5=$24\$12 ÷ 0.5 = \$24 per hour; Product B = $18÷1.2=$15\$18 ÷ 1.2 = \$15 per hour; Product C = $16÷0.8=$20\$16 ÷ 0.8 = \$20 per hour. Product A has the highest CM per constraint hour. Current production with equal quantities: each product gets 800 hours (2,400 ÷ 3), generating total CM of (800 × $24) + (800 × $15) + (800 × $20) = $47,200. Optimal allocation to Product A only: 2,400 hours × $24 = $57,600. Profit increase = $\57,600 - $47,200 = $9,600 .