14. Limiting Factors

Question 1

What is a limiting factor?

Answer 1

Resources which prevent an organisation expanding output

Question 2

What are the 4 steps in identifying the optimum use of resources when there is one limiting factor?

Answer 2

1. Identify the limiting factor
2. Calculate the contribution per unit of limiting factor
3. Rank according to step 2
4. State optimum production plan

Question 3

What technique is used when there are multiple limiting factors?

Answer 3

Linear programming

Question 4

What are the 3 formulation steps in a linear programming problem?

Answer 4

1. Define the two variables X and Y
2. Establish the constraint inequalities
3. Define the objective function

Question 5

What is the shadow or dual price?

Answer 5

How much more it is worth paying in order to obtain a particular resource

Question 6

How do you calculate the shadow price of a scarce resource?

Answer 6

Add one to the relevant constraint and rework the solution to the linear programming problem, the increase in maximum contribution is the shadow price

Question 7

What is the shadow price of a non scarce resource?

Answer 7

Nil

Question 8

What is slack?

Answer 8

The surplus or spare capacity of a particular constraint

Question 9

What is the slack for the constraints that form part of the optimal solution?

Answer 9

Nil

Question 10

What is the equation for slack for the non limiting factors?

Answer 10

Total capacity - capacity used in optimal solution

Question 11

What are the 3 problems with technology tools for decision making and planning?

Answer 11

1. Expensive software costs
2. Hiding important details
3. No identification of input data problems