Limiting factor analysis

Question 1

What is a limiting factor?

Answer 1

A resource which prevents a company from achieving the output and sales it would like to achieve.
For example, staff shortages , machine breakdowns or material delays

Question 2

How to make make decisions with one limiting factor

Answer 2

If there is one limiting factor, then you should maximise the contribution per unit of scarce resource

1. Identify the limiting factor.
2. Calculate contribution per unit for each product.
3. Calculate contribution per unit of the limiting factor for each product. for example, labour hour.
4. Rank the products.
5. Allocate resource using this ranking.