Module 14: Short Term Profit Planning and Limiting Factors Flashcards
What is a limiting factor?
Is in short supply and limits the organisation’s activities
What is assumed in limiting factor accounting?
Management wish to maximise profits
Profit maximised when contribution is maximised
How will profit be maximised?
By prioritising those products with the highest contribution per limiting factors
Contribution per limiting factor?
Contribution per unit/limiting factor (e.g. labour hour)
What is the optimum production plan?
Making the products in rank order until the scare resource is used up
How many units can x hours make?
Units = number of hours/hours per unit
Use of sub-contractors?
Which products to make and which to buy in
Price naturally higher from sub contractor to cover own costs and profit
How will the company decide which products to manufacture?
Saving from in-house manufacture per unit of scarce resource
According to the difference between the variable cost per unit and the sub-contractors price for each product
Amount of scarce resource used by each product
Why is contribution per unit not a relevant measure in determining the production plan?
Includes sales price
Will be same regardless of if in house or from sub-contractor
How to identify what to make in house?
Ensure material is a limiting factor: material cost per unit, how much required?
Identify which should be prioritised in-house: quote, in-house variable cost, saving from making in-house, saving per kg
Prioritise
Profit calculated
Contribution per unit for products bought in externally?
Sales price- sub contractors quote
What is sustainability?
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs
Concept of knowing that the resources of the planet are not indefinite
Why did the Aral Sea in Kazakhstan shrink?
Diversion of its feeder rivers due to irrigation
Evaporation due to increased temperature and pollution
Split into 4 smaller lakes
Volume of 10% of original
One a Desert since 2014
What does sustainable development address?
Economic, environmental and social issues
Trying to ensure natural resources are not depleted by increasing human population
What compromise must businesses reach?
Between their own growth and ambition and the potential they can cause long term damage to the planet
