The most profitable product for Nicholas, Inc. to manufacture based on unit data and contribution margin per unit of a scarce resource is Advanced Product.
A profitable product is one whose sales revenue covers the costs of production, selling, and administrative support.
A profitable product can be determined by determining the contribution margin per unit and dividing this by the units of a scarce resource that it consumes. The result is the contribution margin per unit of the scarce resource.
Thus, the product that yields the higher contribution margin per unit of a scarce resource is preferable to the rest.
Simple Product Advanced Product
Selling price $22.75 $55.00
Variable cost 10.00 34.50
Contribution margin per unit $12.75 $20.50
Pounds of scarce raw material per unit 35 35
Contribution margin per scare resource $0.364 $0.586
Thus, the most profitable product for Nicholas, Inc. to manufacture based on the given unit data and the contribution margin per unit of a scarce resource is the Advanced Product.
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