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there are four product A,B,C
Labour hour is the limiting factor
$
Product “A” : Selling price 20
marginal cost 10
cost of buying 15
labour hour per unit 2 hourProduct “B” : Selling price 30
marginal cost 15
cost of buying 20
labour hour per unit 3 hourProduct “C” : Selling price 0
marginal cost 15
cost of buying 18
labour hour per unit 1.5 hourso the question is
1) how do i rank this when i have to make decision about weather to make or buy in order of there priority?????
If you look at page 47 of our free lecture notes, you will see that we calculate the saving per unit of the scarce resource (in this case labour) from making the product rather than buying it in, and rank on that basis.
So for product A, for example, the saving per hour = (15 – 10) / 2 = $2.50 per hour.
(It is the same logic as for key factor analysis)
I think you may have mistyped the selling price for C. If it really is zero, then it becomes a bit shorter a question 🙂
So Sir, you mean to say in making and buying decision we should always consider “saving per limiting factor”
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