Concept of limiting factor

Concept of Limiting Factor

The normally organization produce the product depend on the ability to sale but sometime there is a demand for the product but due to shortage of resources the organization can not produced the required demand. The scarce resource place a limit on the production and this is called limiting factor. There may be single limiting factor and multiple limiting factors.

Determination of Limiting Factor

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Limiting factor can be easily calculated with the help of simple budget technique. How much resources are required for given demand and how much resources are available and if resources available are less than demand then this are a limiting factor situation.

Single Limiting Factor

In case of single limiting factor the profit can be maximized by maximizing the contribution. The product are ranked in accordance of contribution . The product providing the maximum contribution shall be produced first , the product providing second high contribution will be produced in second place . This process will continue till the limiting factor put a cap on further production.

Multiple Limiting Factors

In case of two or more limiting factors the decision will be made through linear programming because each limiting factor will give a different product mix and it would be really complex situation to take appropriate decision. The linear programming technique would give you a correct answer in the situation . The Linear programming is a mechanical type of process to give you the suitable option.

Linear Programming 

There are two stages of linear programming for limiting factor

1.       Defining the objective

2.       Formulating the constraints

Defining the objective

In most cases the objective is to maximize the contribution and this objective is expressed in the form of formula.

Formulating the Constraint

The second stages are to formulate you constraints. There may be maximums or minimum limit which will be expressed accordingly in accordance with mathematical guidelines. One of the requirement of linear requirement is no negative values can be used to calculate the final results.