Question

Tan Trading Company manufactures furniture in Penang for local and European markets. The company is unable to produce enough to meet the demand of the local and European market. This is due to shortage of raw materials, which are source locally. It is extremely important for the company to produce enough to meet the demand of the local and European market. If the company loses the customer to other competitors, it will be extremely difficult to recapture the local and European market. You are required to do a research and report to the board of directors;

A) Introduction.      (5marks)

B) Discuss on what a limiting (or key) factor is and what sources can become limiting factors in a business situation. Which of the factors in the scenario could become a limiting factor? Looking into the current economic constraints, provide examples to support your idea.        (20marks)

C) Discuss the techniques that have been developed to assist in business decision making when single or multiple limiting factors are encountered.     (20marks)

Tan Trading Company manufactures furniture in Penang for local and European markets. The company is unable to produce enough to meet the demand of the local and European market. This is due to shortage of raw materials, which are source locally. It is extremely important for the company to produce enough to meet the demand of the local and European market. If the company loses the customer to other competitors, it will be extremely difficult to recapture the local and European market. You are required to do a research and report to the board of directors, a) Introduction : (5marks) b) Discuss on what a limiting (or key) factor is and what sources can become limiting factors in a business situation. Which of the factors in the scenario could become a limiting factor? Looking into the current economic constraints, provide examples to support your idea (20marks) c) Discuss the techniques that have been developed to assist in business decision making when single or multiple limiting factors are encountered. (20marks)

Answer 1

(b) Limiting factor is the factor which restricts company's activities.Limiting factor in an organization can be labour hours,raw materials , machine hours etc.

Eg : When sales demand exess the productivity capacity, the company do not have enough resources to produce the products, the scare resource will be the factor that resricts the company's activities.Hence the scare resources should be identified to ensure company has enough resources to produce their products as many as they wish.By using limiting factors we can maximise the profit when btained the greatest possible contribution to profit each time.

	Contribution per unit	Machine hours required per unit	Estimated sales demand	Required Machine Hours
A	24	6	3000	18000
B	20	2	3000	6000
C	12	1	3000	3000

(b) When single limiting factor are encountered , limiting factor analysis has to be used to help companies to identify the scare resources and maximise profit by using the best combination of available resources.In limiting factor analysis , the bottleneck resources has to be identified first . After that contribution per unit for each product has to be identified.Next we can calculate the contribution per unit of bottleneck resources for each product after contribution per unit is found.After this products can be ranked from higgest to the lowest in sequence based on contribution per unit of bttleneck resource.Finally resources can be allocated from highest contribution per profit to lowest contribution per profit by the ranking until the resources are used up.By doing this we can attain the greatest possible profit when resources are limited by single limiting factor.

	Machine hours per unit	Sales Demand
X	3	2000 units
Y	4	3000 units

	X	Y
Sales	32	50
Less :Direct Material	10	20
Direct Labour	5	8
Variable Overhead	20	36
CONTRIBUTION	12	14