Chapter 8: Limiting Factors Flashcards
Calculating an optimal production plan with single limiting factor
Identify what the limiting factor is
Calculate the contribution per unit for each of the products
Calculate the contribution per unit of the limiting factor for each of the products
Rank the products according to the contribution per unit of the limiting factor
Work out the optimal production plan
Calculating an optimal production plan with multiple limiting factor
Define the variables
Establish the constraints
Define the objective function - usually maximising contribution
Solving a linear programming problem graphically
Plot the contraints on a graph
Identify the feasible region
Plot the objective function
Determining the optimal function
Sub-contracting production / oursorcing
advantages
Adv
It allows greater volume of sales to be achieved by the business with a limiting factor
Cost may be lower than producing ourselves if the subcontractor achieves suitable economies of scale
The quality may be better as the subcontractor maybe more specialised
It allows the business to focus on its core strengths
Sub-contracting production / oursorcing
disadvantages
Business will lose control over the production process which can impact quality
Lead times may become longer as the sub-contractor will have to deliver the units to us
The business can become too reliant on the subcontractor who may then start to increase prices significantly
May limit access to finance
Dealing with the option to source more of the limiting factor
Take account additional costs incurred when preparing the budget. Overtime hours for labour may be paid at a premium to the basic hourly rate. Hiring additional machinery will incur additional costs.
