Cost Accounting General Concept

Multiple Products, Resource Constraints, Demand Constraints

Multiple products without binding demand constraints [produce and sell the single product which is most profitable with the quantity limited by the binding resource constraint] Multiple products with binding demand constraints [produce and sell several products which mix of products is the most profitable with the quantity of each limited by the binding resource constraint and the demand limitations] Best Production Plan with Multiple Products and Constrained Resource CR ap amount of the constraining resource amount of the constraining resource for a unit of product p Product Dos 20 6

Uno cm a CR What is the best production plan? 10 5

Tres 30 20 600

Non-binding DQ constraint CQ CM 120 1200

analysis 100 2000 30 900

Decision statistic cm / a rank 2 2 3.33333 1 1.5 3

Best Production Plan with Multiple Products and Constrained Resource and Demand Constraints Binding DQ constraint(s) DQ CR @ DQ 80 400 Example 1, CR = 600 75 450 50
remaining

1000

available

CR start step 1 PQ = SQ CRp @ SQ step 2 PQ = SQ CRp @ SQ 30 150 75 450 600

150

Value of and Use of CR with demand constraint available CR amount

0 - 450

value of additional capacity unit

make product 2 make product 1 make product 3 no production

3.33333 2 1.5 0

451 - 850

851 - 1850 1851 -

Binding DQ constraint(s) DQ CR @ DQ 80 400

Example 2, CR = 1000 75 450 50

remaining

1000

available

CR start step 1 PQ = SQ CRp @ SQ step 2 PQ = SQ CRp @ SQ step 3 PQ = SQ CRp @ SQ 80 400 7 140 75 450 1000

550

150

10

Note:

reduce Uno by 2 units frees up 10 resource units 10 resource units freed up plus 10 idle resource units allows an additional Tres 2 * 10 = 20 lost from Uno reduction 1 * 30 = 30 gained from Tres unit increase net is +10 for the shift from Uno to Tres

1/9/2014