What are some other criteria besides maximizing CM to consider when evaluating the order to produce...

What are some other criteria besides maximizing CM to consider when evaluating the order to produce a product?

Expert Solution

Maximizing Contribution margin for any product is very important because that determines majorly as to how much the company net margin of the product would be. Beside the contribution margin from that product other factors should be considered.

· When evaluating a new product, one should also evaluate as to what would be the effect of this on the existing product lines. If the existing product lines are to be negatively affected then you need to consider that as an outflow of cash.

· Contribution margin is just one thing, the product being evaluated should not be against the ethical standards of the society or in general against the law of the land.

· The company should also consider as to what would be the net margin from that product as that is the company would be left with. Even if the company has high contribution margin but indirect cost is significantly high then the net profit margin from that product would be very low and the product might not be profitable at all.

jeff jeffy answered 2 years ago

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