ACCA Performance Management (F5) Certification Practice Exam

Which aspect should be ranked highest in contribution analysis?

1. Which is higher

2. Which has highest market demand

3. Which has lowest risk

4. Which has historical performance data

The correct answer is: Which is higher

In contribution analysis, the aspect that should typically be ranked highest is which is higher, referring specifically to the contribution margin of products or services. The contribution margin is crucial because it represents the amount available to cover fixed costs and generate profit after variable costs have been subtracted from sales revenue. This focus on numerical superiority underscores the objective of maximizing profit: by prioritizing items with higher contribution margins, an organization can enhance its overall financial performance. This approach aids in resource allocation, ensuring that effort and investment are directed towards the most lucrative aspects of the business. While other factors such as market demand, risk, and historical performance data are important for comprehensive business strategy and decision-making, the immediate objective of contribution analysis is to identify those products or services that can yield the greatest contribution to the company’s profitability in the shortest term. Hence, prioritizing the higher contribution margin is essential for making impactful business decisions.