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Whenever we have Limiting Factor in our production such as limited material kgs or labour will always force us to restrict our production and to see how many units we can make using those limited resources (ie limited material or labour) we need to use Key Factor Analysis.
Key Factor Analysis steps:
1) Calculate Contribution per unit
2) Identify Material Kgs or Labour hrs
3) Contribution per Labour hrs
4) Ranking
5) Production PlanWe make the product whichever gives highest contribution to be preferred producing first then the second best would be produced and so on…
That is correct except that your step 3 may be contribution per hour or contribution per kg depending on what the limiting factor is.
Also, this does assume only one limiting factor (otherwise it would be linear programming) and that is not a throughput accounting question.
Have you watched my free lectures on all of this?
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