Unit 6: ECR Limited Factors

Gal_NikNak

Does anyone have a system to help them deal with Limited Factors / creating production plans. I just cannot get my head around it.....

:crying:

SandyHood

1. Find the contribution per unit
2. Then find the amount of limiting factor required per unit (eg skilled labour hours)
3. Divide the contribution per unit by the limiting factor per unit to get a contribution per limiting factor
4. Look at each product and rank them making the one with the highest contribution per limiting factor rank 1
5. Then go back to the amount of limiting factor available
6. Multiply the rank 1 product limiting factor per unit by the maximum sales to find how many skilled labour hours it will need for maximum production. If this is less than the skilled labour hours available take this off
7. This leaves a reduced number of skilled labour hours,
8. Repeat the process with the second and then the third ranked product until there are not enough skilled labour hours available
9. Then take the total skilled labour hours left and divide by the hrs per unit for that product
10. This will enable you to list the optimum production mix.

SandyHood

Look at this example

taken from the Dec 2004 ECR paper
link to paper
http://www.aat.org.uk/other_files/ECRDec04questions.pdf
start at page 12


Sales and production in units 1,000 200 500 1000 200 500
Selling price per unit £50 £120 £80 £50 £120 £80
Direct materials per unit £10 £24 £16 £10 £24 £16
Direct labour hours per unit – moulding centre 2 4 3 £10.00 £20.00 £15.00
Direct labour hours per unit – glazing centre 0.5 4 1 £3.00 £24.00 £6.00
Direct labour rate per hour – moulding centre £5 £5 £5
Direct labour rate per hour – glazing centre £6 £6 £6
Contibution per unit £27.00 £52.00 £43.00

Glazing hrs per unit 0.5 4 1
Contribution per glazing hour £54.00 £13.00 £43.00
rank 1 3 2

Total hrs available 1400
rank 1 Alpha 1000 units x 0.5 hrs per unit 500
hrs remaining 900
rank 2 Gamma 500 units x 1 hrs per unit 500
hrs remaining 400
rank 3 Beta 400 hrs/ 4hrs per unit
= 100 units 400

So the optimal production mix is
Alpha 1000 units

Gamma 500 units

Beta 100 units