Limiting factor
A limiting factor restricts the activity or output an organisation can achieve, such as scarce labour, materials, machine hours or customer demand. Identify resource requirements and availability before choosing a production plan. With one scarce resource and appropriate linear assumptions, rank products by contribution per unit of that resource, not contribution per product. Respect demand limits and consider whether extra capacity can be obtained. Multiple constraints may require a different optimisation method.
Worked example
A earns $12 contribution using three machine hours, or $4 per hour; B earns $10 using two hours, or $5 per hour. With only machine hours scarce, prioritise B subject to demand.
Common mistake
The product with the largest contribution per unit does not necessarily make best use of the scarce resource.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |