Answer (A) is correct . A theory of constraints (TOC) analysis proceeds from the assumption that only direct materials costs are truly variable in the short run. This is called throughput, or supervariable, costing. The relevant margin amount is throughput margin, which equals price minus direct materials. Thus, the relevant margin amount for this manufacturer is $490 ($660 – $170).
Answer (B) is incorrect because The amount of $345 results from subtracting conversion cost, rather than throughput cost, from selling price.
Answer (C) is incorrect because The amount of $265 results from subtracting prime cost, rather than throughput cost, from selling price.
Answer (D) is incorrect because The amount of $175 results from subtracting all manufacturing costs, rather than just throughput cost, from selling price.
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The relevant margin amount when beginning a theory of constraints (TOC) analysis is
