Key factor Analysis:-
- identify the bottleneck constraint.
- calculate contribution per unit 4 each product.
- calculate contri per unit divided by the bottleneck resource 4 each unit.
- rank the products.
- allocate resources using the ranking/
LP can be used 2 solve profit maximising and cost minimising problems in a limiting factor situation.
Assumptions 4 LP factor analysis:-
- each product always use the same quantity of the scarce source per unit.
- contribution per unit is constant (constant SP and VC)
- scenario is short term - ignore fixed costs.
Amount of resource is under-utilised. Max available resource is not used.
Shadow/Dual Price:-
calculating the extra contributin (increase in value) of one extra unit of the scarce resource at its original price. company can use shadow price to calculate the maximum premium that the company is willing to pay 2 get one more unit of the limiting factor. only critical contraints have zero shodow price.
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