ACCA F5 - Performance Management
Back in article "C08 Throughput" we identify
bottleneck resource as internal limiting factor of production. In this article
we go through both hard (machine hour/labor hour) and soft (demand/financial
regulations) limiting factors and their effect in production and sales.
Hard factors mean the factors which can be materialized, and
they have concrete or actual images, and they are objective, such as
traditional land, capital and labor with material form.
Soft factors mean the factors which can not be materialized,
and they are abstract and they have not concrete material forms, and they are
not easy to be measured, and they are created by human through the accumulation
of knowledge and the advance of socialization, and they are subjective or
consciousness. The soft factors include knowledge soft factor and social soft
factor, and the knowledge soft factors mean the human capitals such as
technology, talent, knowledge and intelligence of people, and the social
factors mean the social capitals such as regulation formed by the social power
guaranteeing the economic activity order.
Hard limiting factors are easy to quantify. Therefore, now
we see how to deal the situation with one or more limiting factors in order to
optimize contribution and minimize variable costs. Since fixed costs remain
unchanged for any combination of products, they are irrelevant to decision.
Therefore, we use marginal approach for decision-making process.
Deciding optimal production mix in situations with single
limiting factor:
Ø
Identify limiting factor/scarce
resource/bottleneck constraint
Ø
Calculate the contribution per unit for each
product
Ø
Calculate the contribution per unit of the
limiting factor for each product
Ø
Rank the products in order to of contribution
per unit of limiting factor
Ø
Allocate resources using the ranking to achieve
best production mix
CIMA Article: Limiting factors
ACCA Article: Limiting factor
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