Compare contribution per hour of scarce capacity

01

Find the resource and relevant costs

Identify the step with insufficient available capacity for the demand under review. It might be a specialist, machine or approval team. Check its available hours after maintenance and breaks, as well as existing commitments. A busy step is not necessarily the constraint. Downstream blocks or poor quality can create a misleading queue.

For each option, estimate net revenue per unit and the costs that change with that unit, including applicable variable selling costs. Subtract variable costs to get unit contribution. Use the time each unit requires at the constrained step, including relevant setup and expected rework if those estimates are reliable.

02

Work through a capacity choice

Hypothetically, service A sells for $300 and incurs $180 in variable costs, leaving $120 contribution. It uses two constrained hours, so contribution is $60 per constrained hour. Service B sells for $240 and incurs $150 in variable costs, leaving $90 contribution. It uses one constrained hour, or $90 per constrained hour.

With 10 otherwise unused constrained hours and demand for 10 whole jobs of either type, five A jobs contribute $600, while 10 B jobs contribute $900. This comparison assumes constant prices and costs, no other limiting step, and no incremental fixed cost. It does not establish net profit or a forecast of demand.

03

Check limits before choosing

Demand may not support 10 B jobs. Contracts, deadlines, quality requirements and minimum service commitments may also limit the mix. A setup cost or batch minimum can change the comparison. If an existing order would be displaced, include the contribution lost from that order and any relevant contractual consequences.

If capacity expansion adds a shift or equipment cost, compare the additional expected contribution with that incremental cost over the relevant period. Fixed costs can change in steps, and labor may not vary immediately with individual jobs. Use actual cost behavior rather than labeling every expense variable or fixed by habit.

04

Review results against the model

Record the time and price assumptions. Include costs, available hours and the demand limit for each option. Give the capacity decision an owner and a review date. Track actual constrained hours, completed units, rework and contribution using comparable definitions.

If time per job varies widely, test a range rather than relying on a single average. If the bottleneck moves after a change, recalculate using the newly scarce resource. This is a short-term decision aid. Consult a financial professional when a material decision or cost classification is uncertain.

05

Add a demand limit to the example

Using the earlier hypothetical figures, assume customers will buy at most six B jobs and there are 10 constrained hours. Six B jobs use six hours and contribute $540. If two A jobs can use the remaining four hours, they add $240, for $780 total contribution. This mix assumes sufficient demand for A, whole jobs, unchanged prices and costs, and no other binding constraints.