Page 249 - BA2 Integrated Workbook STUDENT 2018

Short-term decision making

Limiting factor analysis

5.1 Identifying the limiting factor

A limiting factor is any factor which is in scarce supply and which limits the
organisation’s activities.

Examples of limiting factors:

 sales demand

 machine capacity

 supply of labour

Example:

A company has demand of 500 units for each of its two products (A and B).

Each unit of product A requires 3 hours of labour and 2 machine hours.

Each unit of product B requires 4 hours of labour and 1 machine hour.

There are 3,000 labour hours and 1,800 machine hours available in the next period.

Which is the limiting factor?

Required Available

Labour hours (500 × 7) = 3,500 3,000

Machine hours (500 × 3) = 1,500 1,800

Therefore labour is the limiting factor.

Illustrations and further practice

Now try TYU 11

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