Limiting Factors and ABC

Question 1

How do you prevent a materials shortage?

Answer 1

Think of:

Stakeholders
Internal/External Improvement
Reliability
Labour - reduce wastage
Machinery - reduce wastage
Product Design
Alternative Materials

Question 2

What is ABC used for?

Answer 2

• Assigning overheads/indirect costs to products/services to make pricing decisions
• Separating overhead rates for each activity

Question 3

When is ABC more useful than other methods?

Answer 3

When there are complexities/externalities that can’t be accounted for in average cost - use specific values from question to answer

Question 4

Row labels for limiting factor comparison layout

Answer 4

1. Things that cost in production
2. Variable cost/unit
3. Selling minus variable
4. Contribution margin/unit (a)
5. Amount of constrained resource required to produce 1 unit (b)
6. Contribution margin/unit of constrained resource (a/b)
7. Ranking