1 / 4

Optimal Use of Limited Resources

Optimal Use of Limited Resources. when something constrains or limits operations (labour hours, machine hours, raw material, space) determine contribution margin per the limiting factor allocate usage to maximum profit. Plain Fancy Contribution margin per unit $4.00 $9.00

oprah-cline
Download Presentation

Optimal Use of Limited Resources

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Optimal Use of Limited Resources • when something constrains or limits operations (labour hours, machine hours, raw material, space) • determine contribution margin per the limiting factor • allocate usage to maximum profit • Plain Fancy • Contribution margin per unit $4.00 $9.00 • Units of production per hour 3 1 • Contribution margin per hour $12.00 $9.00 • allocate capacity to “Plain” up to expected demand, and then allocate remaining capacity to “Fancy”

  2. Optimal Use of Limited ResourcesExample (P 8-8) • Suppose a company makes two products: The fancy saw is more profitable based on contribution margin

  3. Optimal Use of Limited Resources Example (cont’d) • Demand is for more units than the company can produce. • There are 20,000 machine hrs available. • Two plain saws can be produced in the same time (one hour) as one fancy saw. • Calculate the total contribution margin for 20,000 hours for plain saws only and for fancy saws only.

  4. Optimal Use of Limited ResourcesExample (cont’d) The plain saw is more profitable when we consider that number of hours is constraining operations

More Related