Explain and describe what a limiting factor is

Explain and set forth what a bound gene isLimiting factor is any factor that restricts a keep ph wiznessr or an plaques activities. In simple spoken communication, a restrain factor is the factor which is throttle or non freely ready(prenominal) to the company. Limiting factors in an organisation dirty dog be ride time, new literal, railroad car hours or space. For example, when gross sales demand excess the harvest-tideivity capacity, the company do non have enough imagings to perplex the product, the scarce resource will be the factor that restricts the companys activities. The performance constraints bed be removing and special resources can be acquired when the scarce resources argon existed. Hence, the scarce resources should be place to make sure the company has enough resources to elevate their products as many as their wish. By employ constrictive factor, we can maximize the bread when obtained the greatest possible constituent to scratch to each one time.Example1ABC section per unit of outputRM 24RM 20RM 12 instrument hours necessary per unit of output6 hours2 hours1 hoursEstimated sales demand3,000 units3,000 units3,000 unitsRequired form hours18,000 hours6,000 hours3,000 hoursThe simple appliance hour is limited to 18,000 hours for the full stop because of the breakdown of one machine.Consider Example 1.From the example 1, we cut that the company required rack up 27,000 machine hours to fetch the do sales demand of the product A, B and C that they estimated. However, the company scarcely has 18,000 machine hours for the period because of the breakdown of one machine. In this situation, companys activities atomic number 18 limited in the available of machine hours. When we looking at the available information, we will estimate that the company should produce the product A first since the percentage per do good for product A is the highest still this assumption can be wrong. This is because produce a p roduct A required 6 machine hours, whereas product B required 2 machine hours and product C required 1 machine hours only. The company can concentrates on producing 3,000 units of product B and C respectively and still have machine hours left to produce product A. In other words, if the company only concentrates on produce the product A, in that location will no machine hours left to the company to produce B and C. In order to maximize the companys profit, we should use pass factor to foretell the greatest possible share per profit for each product and rank profit competency of the product to obtain the optimum production plan.(b) Explain the techniques that have been developed to assist in business ratiocination- do when single or multiple limiting factors are encountered(16 marks)Single limiting factor- Limiting factor analysisWhen single limiting factor are encountered, we have to use limiting factor analysis to assistant companies to attain the scarce resources and maxim ize profit by using the best combining of available resource. In limiting factor analysis, we should identify the tightness resources first. Secondly, we should calculate the contribution per unit for each product. Next, we should calculate the contribution per unit of the blockade resource for each product. aft(prenominal) we beat up the contribution per unit of stymie resource, we can rank the products of the contribution per unit of bottleneck resource. Fin onlyy, we can portion the resources from the highest contribution per profit to the lowest contribution per profit by the rank. By doing so, we can obtained the greatest possible profit when resources are limited by single limiting factor.Example 2XY machine hours per units3 hours4 hoursSales demand2,000 units3000 unitsRMRMSelling price3250Less fill Material1020Direct Labour58Variable Overhead582036Contribution1214The supply of materials for the period is unlimited, but the machine hours are limited to 15,000 hours.In o rder to maximize the profit, we should using limiting factor analysis to solve the problem when at that place is only one limiting factor. measurement 1 Identify the bottleneck resource.At sales demand trainSales demand appliance hours per unitTotal machine hoursX2,000 units3 hours6,000 hoursY3,000 units4 hours12,000 hours18,000 hoursThus, machine hours are the limiting factor.Step 2 take aim the contribution per unit for each product.The contribution has been given at the above.XYContribution per unitRM 12RM 14Step 3 Calculate the contribution per unit of the bottleneck resource for each product.To calculate the contribution per unit of the bottleneck resource for each product, the formulae isContribution per units of the machine hours =ContributionMachine hours result X =RM 123 hours=RM 4.00Product Y =RM 144 hours=RM 3.50Step 4 Rank the products from the highest contribution per machine hour to lowest contribution per machine hour. doing should be arduous on product X first, u p to supreme sales available, past product Y.Step 5 Finally, allocate the available resources using that ranking that we decided at step 4 and calculate the maximum contribution.Production planUnits producedMachine hours per unitTotal machine hoursBalance of machine hours15,000 hoursProduct X2,000 units3 hours6,000 hours9,000 hoursProduct Y2,250 units4 hours9,000 hoursSo, the maximum contribution is as followRMProduct X ( 2,000 units x RM 12)24,000Product Y (2,250 units x RM 14)31,50055,500Multiple limiting factors- Linear programmingWe can use limiting factor analysis when there is one limiting factor. However, when there is more than one of scare resources which restricts organisations activities, we can use running(a) programming to solve the problem. Firstly, we must defined the variances when we using bilinear programming. After this, we can define and formulate the objective. Thirdly, we can formulate the constraints to formulating the problem. Next, we must bewilder a c hart to identify the feasible region and we can run the optimum production plan from the graph. Finally, we can solve the problem and get the maximum contribution by doing so.Example 3ABContribution per unitRM 20RM 10Machine hours per unit6 hours3 hoursKilos per unit4 kilos8 kilosMaximum available Machine hours= 18,000 hoursKilos= 24,000 kilosWhat should be the production plan?To answer the example 3, we should use linear programming to get the optimum production plan because there is devil or more of scarce resources.Step 1 Define the variances allow x = the number of units of the product A.y = the number of units of the product B.Step 2 Define and formulate the objective function.The objective is to maximize the contribution C, given byMaximum contribution = 20 x + 10 yStep 3 formulate the constraints.The limitations here are machine hours and kilos.For the machine hours, product A required 6 hours and product B required 3 hours machine hours.So, total machine hours required = 6 x + 3 yFor the kilos, product A required 4 kilos and product B required 8 kilos.So, total kilos required = 4 x + 8 yConstraintsUtilisedAvailableMachine hours6 x + 3 y18,000Kilos4 x + 8 y24,000Step 4 turn tail a graph and identify a feasible region.For the equation 6 x + 3 y = 18,000 machine hoursWhen x = 0, y = 18,000/ 3 = 6,000When y = 0, x = 18,000/ 6 = 3,000Draw a straight line among the order (0, 6000) and (3000, 0) on the graph to represent the line for machine hours constraint.For the equation 4 x + 8 y = 24,000 kilosWhen x = 0, y = 24,000/ 8 = 3,000When y = 0, x = 24,000/ 4 = 6,000Draw a straight line between the point (0, 3000) and (6000, 0) on the graph to represent the line for kilos constraint.The constraints can be show as belowThe original constraints were Step 5 Determine the optimal firmness of purposeCalculate the contribution earned at each point P, Q and R nous P= RM 20 (0) + RM 10 (3,000)= RM 30,000Point Q= RM 20 (2,000) + RM10 (2,000)= RM 60,000Point R= RM 20 (1,500) + RM10 (0)= RM 30,000Point Q gives the maximum contribution.Step 6 cause the questionThe optimal point is at x = 2,000 and y = 2,000. This gives a maximum contribution ofC = (20 x 2,000) + (10 x 2,000) = RM60, 000(c) Explain the forethought idea known as throughput news report. State and justify your opinion on whether or not throughput accounting and limiting factors are the same thing.(18 marks)To debase companys terms and improves the profitability, every companys managers are using cost accounting to help them on decision-making. Theory of constraints (TOC) or Throughput accounting (TA) is another method for decision making others than Standard Based Costing, Activity Based Costing and marginal Costing. TOC/TA is new steering accounting approach based on factors identification when constraints are restricts companies to achieving their goals and hence downs companys profits.Throughput accounting is utilize when there are only few constraints, normally just on e. The constraint can be a resource, company insurance or management mindset. According to Goldratts ideas, TOC is vaticination on a limit capacity at certain faultfinding points in any production plan. TOC can maximise organisations profit by increases the speed of producing through an organisation to eliminating bottlenecks.Additionally, throughput accounting is not costing because it does not allocate all expenses (variable and fix expenses, including overheads) to the products and services. Thus, throughput accounting helps managers to get better management decision in order to improve organisations profits by trine measurements. They areThroughput (T) is the rate that company produces goal units. When the goal units are bills, throughput is boodle sales (S) less total variable costs (TVC), usually is cost of raw materials ( T = S TVC ). However, T exists when there is only one product or service sold. Besides, finished goods of inventory in a warehouse are not count bec ause it has not yet sold. direct expenses (OE) is all others expenses except the total variables cost that used to calculate the throughput. Basically, OE is total cost to operate the production system. Fixed or partially fixed costs no diversity in throughput accounting. On the contrary, there only have either total variable cost or operational expenses in throughput accounting. Examples for OE include maintenance, utilities, rental, etc.Investment (I) is total amount of money that invest in a new system to enhance its ability to improve the capacity, for examples machinery, inventory, building, and other assets and liabilities. in that respectfore, throughput accounting use difference formulas to make difference types of accounting decisions by combined the throughput, total variable costs and operating expensesNet profit(NP) = Throughput operate Expense = T-OEReturn on investment(ROI) = Net profit / Investment = NP/IProductivity(P) = Throughput / Operating expense = T/OEInv estment turns(IT) = Throughput / Investment = T/IWe can use the above formulas when making a decision that related to changes in revenue, expenses or investments to get the right decision, which must generate a arrogant answer from one out of three questions belowDoes it increase throughput?Does it reduce operating expense?Does it improve the return on investment?Finally, there are five steps in the TOC to help managers maximize the throughput which causes them to succeed organisations goals. The five steps are as followsIdentify the system constraints. There is an internal constraint? For example, in production, engineering or planning. There is an outer constraint? For example, in the market. The constraints a resource or a policy?Decide how to maximise the output from the constraint. Prepare all other activities conquer to this decision. While Non-constraints need to be subject to constraints.Consider the appropriate level of resources once the resource constraint has been id entified. Therefore, the capacity constraints can be improved. conjure the systems constraints.Once the constraint has been corrected, return to Step 1 to determine the contiguous most serious constraints and duplication.In my opinion, throughput accounting and limiting factor is not the same thing but there are similarities and differences in between throughput accounting and limiting factor. For example, throughput accounting and limiting factor are using to assist companies to identify bottleneck resources instead to maximize companies profits.However, throughput accounting is used when there are very few constraints often just one but limiting factor is used when there are one or more than one constraints. Besides, limiting factor is focus on working to obtain greatest contributions while throughput accounting is focus on the premise that the limited capacity in some critical point of any production plan.In addition, limiting factor maximise the organisations profit by using th e best combination of available resources but throughput accounting is maximise the profit by increase the producing speed through organisation to eliminate bottlenecks. Throughput accounting calculates the products throughput as the selling price minus all variable costs. Variable costs or in another words cost of materials in throughout accounting included direct material costs only, labour and overhead costs are fixed and categories to total factory costs. In contrast, limiting factor calculated by sales price minus variable costs to get the contribution but variable costs in limiting factor are including the labour and overhead costs, this is difference from throughput accounting.