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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