When using the bottleneck product mix decision method in the context of investments in securities, which factor should be prioritized to maximize overall profitability?

• A. Select securities with the highest total return regardless of resource constraints
• B. Prioritize investments with the lowest risk only
• C. Maximize the contribution margin per unit of the constrained resource
• D. Invest equally in all available securities

Answer: (C)

Verified step by step guidance

1. Understand the concept of bottleneck product mix decision: This method is used to allocate limited resources (the bottleneck) to maximize profitability. The focus is on optimizing the use of the constrained resource.
2. Identify the constrained resource: In the context of investments in securities, the constrained resource could be capital, time, or any other limiting factor that restricts the ability to invest freely.
3. Calculate the contribution margin per unit of the constrained resource: Contribution margin is the difference between revenue and variable costs. Divide the contribution margin of each investment option by the amount of the constrained resource it requires to determine the contribution margin per unit of the constrained resource.
4. Rank the securities based on the contribution margin per unit of the constrained resource: Prioritize investments that yield the highest contribution margin per unit of the constrained resource to maximize overall profitability.
5. Allocate the constrained resource: Begin by investing in the securities with the highest contribution margin per unit of the constrained resource, and continue allocating resources until the constraint is fully utilized.