Tuesday, March 18, 2014

Planning with Limiting Factors Part3


ACCA F5 - Performance Management 



Feasible region: The simple rule is feasible reason for a constraint is below the line for >= equation and above the line for <= equation. The overlapping section for all constraints produces feasible reason for multiple constraints. Corners of feasible reason are represents by point of intersection of two lines representing constraints.

Enumeration method of solution (i.e. values of variables at intersections are fed into objective function and best decision is made):  Value of variables at intersection are noted and is fed into objective function. Then, results from evaluation are analysed as per the need of the situation (i.e. maximization or minimization).
(If you want to fully enumerate the calculation check summarizing and example in the article page 5)

Isoline method of solution (i.e. objective function isoline is drawn, projected and decision is made): Isoline are of various types. E.g. lines representing geography with similar altitude, regions with similar temperature, sales mix with similar profit figure (isoprofit line) and other presented below. For business planning possible isolines are listed below.
 After feasible reason is identified, an isoline is drawn in the graph which, represents the objective function at one activity level and the line is shifted up and down to keeping parallel to original objective line. Then, required highest or lowest point where, isoline touches to feasible reason is desired outcome.

Isoline maximization:
Isocontribution is geometrical (linear/curve/irregular) representation of contribution (objective) function where different combinations sales mix yield same contribution.
Isorevenue is geometrical representation of sales revenue where different sales mix yield same revenue.
Isoprofit is geometrical representation of profit figure where different sales mix yield same profit.
IsoNPV is geometrical representation of project NPV where different combination projects under consideration yield same net present value.
Isoquant is geometrical representation of production function where different combination of variables of production yield same quantity of output.

Isoline minimization:
Isocost is geometrical representation of costs where different combination of inputs of production variable incurs same cost.



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