Limiting Factors

Hi Sir

In the September/December 2019 – Question 1bi – we’re asked to provide a financial and non-financial review of an two possible orders, which cannot be entirely fulfilled due to insufficient labour hours.

In this particular question, the demand for all three products is exactly the same per respective order and so in one order it’s 2,000 units for products A, B and C and in another order it’s 3,000 unit for products A, B and C.

I was just wondering (and I’m going to find this difficult to put clearly):

– in this Q, because each product type had exactly the same quantities order for each, we were able to simply compare fulfilling one full order and then using the residual labour hours to fulfill the maximum extent of the other order, prioritising the units with the greatest contribution per labour hour

– HOWEVER,if the units order, per product A, B and C, had been different for both orders, would it have been worth deriving the average contribution per full order (for each supplier, for all of the products A, B and C)

– and then, instead of assuming full production of each order and then analysing the residual contribution achievable from partially fulfilling the alternative order, would we instead;

– prioritise ONLY the order with the highest average contribution per labour hour for the total products order, calculate how many labour hours this would absorb/utilise and then;

– calculate the balance of the unused labour hours remaining, and allocate those to the other order with the lower average contribution per labour hour, to prioritise the production of the products, with the highest labour contribution, per hour?

Just in case, this is any clearer: what I mean is, in this question, because each product (A, B and C) had the same number of orders per product type (Order 1 had 2,000 units for A, B and C and Order 2 had 3,000 unit for A, B and C), we knew that each of the two separate orders would have the same weighted average contribution per labour hour, but if the two orders had different unit orders for A, B and C, then the two orders would have a different contribution per labour and so it wouldn’t be possible to simply produce all of Order 1 and then allocate the residual to Order 2 and then, compare this by producing all of Order 2 and then allocating the residual. Instead, we’d need to calculate the respective weighted labour contribution per labour hour, for each respective order and then chose the one order with the highest weighted contribution per labour hour. Once that is established, we should then produce a calculation for the total contribution of that order ONLY and then add the contribution, which could be made on the remaining available labour hours, allocating the production according to the products with the greatest labour hours?

I’m sorry that’s so long-winded.

Thank you,

Ali