Unit 6: ECR Limited Factors

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Gal_NikNak
Gal_NikNak Registered Posts: 7 New contributor 🐸
in AAT Level 3 (Level 6 in Scotland)
Does anyone have a system to help them deal with Limited Factors / creating production plans. I just cannot get my head around it.....

:crying:

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  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    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.
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034 mod
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    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
    Sandy
    sandy@sandyhood.com
    www.sandyhood.com

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