Limiting Factor Analysis (2) Flashcards
What is slack?
When maximum availability of a resource or other constraining factor is not used
What is surplus?
The excess over the minimum amount of constraint, where constraint is a “more than or equal to” constraint
What if at the optimal solution, the amount of resource used equals the amount of resource available?
There is no spare capacity of a resource adn so there is no slack
What if at the optimal solution, the amount of resource used is less than the amount of resource available?
There is spare capacity for the resource and so there is slack
What does high slack indicate?
Inefficient use of a particular resource.
What should be done if there is high slack?
The resource should be reallocated to another part of business or if it’s labour, it could be subcontracted out to another company
What does low slack indicate?
The resource could become a binding constraint
If the resource is a particular material in low slack?
Management should investigate whether additional suppliers can be identified
If the resource is labour time in low slack?
HR department should be readied for a recruitment drive, should it be needed
Assumptions of linear programming (fixed)
Fixed costs are unchanged by decision
Assumptions of linear programming (variable)
Unit variable cost is constant
Assumptions of linear programming (estimates)
Estimates of demand and resource requirements are known with certainty
Assumptions of linear programming (output)
Units of output are divisble
Assumptions of linear programming (scarce resource)
Total amount of each scarce resource is known with certainty
Assumptions of linear programming (interdependence)
There is no interdependence of demand between products
Limitations of linear programming? (difficult to identify)
May be difficult to identify which resources are likely to be in short supply and what amount of their availability will be
Limitations of linear programming? (product mix)
Management may not make product mix decisions that are profit maximising
Limitations of linear programming? (exist)
A linear relationship may not exist
Limitations of linear programming? (static)
Linear programming model is essentially static and is therefore not really suitable for analysing in detail effects of changes in various parameters
Limitations of linear programming? (solution)
A solution must be found by a combination of rounding up and trial and error
