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In Make or Buy with limiting factor
After calculating Saving (Purchase price less variable cost of making in house)
We calculate saving per limiting factor and then rank
My question is what to does saving per limiting factor mean (i know we make those products first which have highest saving) and why do we divide saving by limiting factor?
in this case kindly explain
thanks !Suppose one product takes 2 hours and saves $5, and another product takes 1 hours and saves $3.
Although the first product is saving more per unit, it is taking twice as long as the second product. It is better to save $3 for every hour by taking the second product, than only saving $2.50 for every hour by taking the first product.
This is the same principle as basic key factor analysis, and I do suggest that you watch my free lectures.
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